20080827 german economy 18
People walk by a sign in a Berlin store window that reads: "We're closing, -20% Liquidation Sale." German consumer confidence has slipped to a five-year low amid concerns over rising inflation and a possible recession, according to recently released statistics. - 


KAI RYSSDAL: If residents of the Gulf Coast are nervous about what might happen, Germans are tense over what's going on right now. Confidence in Europe's largest economy has plummeted, perhaps because that economy actually shrank in the second quarter.

Stephen Beard reports from the Marketplace European Desk in London.

STEPHEN BEARD: Many European economists say that Germany will slip into a recession by the end of the summer. That may afford Americans some wry amusement.

Graham Mather is with the European Policy Forum.

GRAHAM MATHER: The Germans have been claiming that their export-led, highly manufacturing-based economy was coping with world difficulties better than financial and service-driven economies like the United States. It now looks as though they weren't doing all that fantastically.

But, say the analysts, don't gloat at Germany's misfortune. The effects of it are already rippling across the Atlantic. Stephan Richter is publisher of the online magazine "The Globalist." He says a downturn in Europe's largest economy will bring lower Eurozone interest rates. And that prospect has cut the value of the euro against the US currency.

STEPHAN RICHTER: The dollar is strengthening and that undermines the boost that U.S. exporters had recently just from exchange rate effects with a weak dollar and a very strong euro.

American exports to Germany account for only a tiny fraction of U.S. GDP. But, says Richter, a German recession could easily drag down the rest of Europe and that would hit the global economy.

RICHTER: The stronger Europe is, the more global boost there will be for growth. So everything hangs together. And the better Europe does, the better the U.S. will do.

In other words, he says, forget the American schadenfreude and hope that Germany's angst disappears soon.

In London, this is Stephen Beard for Marketplace.