German Economy Being Pulled Down by Periphery Countries

Europe’s strong economies continue being pulled down by the recessions in the periphery countries. On Tuesday, the United Kingdom reported that its manufacturing dropped 2.9 percent in June, the steepest decline since 2008. At the same time Germany, the continent’s number one economy, reported a greater-than-expected drop in industrial orders.

German Economy Being Pulled Down by Periphery Countries

In June, incoming orders fell 1.7% in monthly adjusted terms, reversing a rebound in May. German domestic orders decreased by 2.1%, and orders from elsewhere in the eurozone plunged by 4.9%. The only bright spot were orders from non-eurozone-countries, which were up 0.6% in June after a 0.5% fall in May.

Tuesday’s figures add to increasing signs of stagnation in Germany: The manufacturing sector is shrinking at its fastest pace in over three years, the closely-watched IFO business sentiment index is hitting its two-year low, and retail sales are falling as the number of Germans out of work has gone up. Last month Germany’s biggest steelmaker, ThyssenKrupp AG (ETR:TKA) (FRA:TKA), announced that it will temporarily reduce working hours at its five production facilities in Germany in a response to slowing demand. In general, German manufacturers are predicting flat earnings in the second half of 2012 because of the European-wide stagnation caused by countries that are on the brink of a sovereign bailout.

Among those countries is Italy, which on Tuesday reported that its economy contracted for the fourth consecutive quarter in June. Italian gross domestic product dropped 2.5% compared with last year’s second quarter, highlighting the huge fiscal and economic issues the country is experiencing at the moment. Ben May, an economist with Capital Economics, told the New York Times that, “Although the pressure from the markets has recently eased, we still think that it is only a matter of time before Italy is forced to seek a sovereign bailout.”

A few days ago Italy’s prime minister Mario Monti created an uproar among German politicians when he told Der Spiegel, the German magazine, that European leaders should not let their own parliaments come in the way of their efforts to save the Euro. “If governments allow themselves to be fully bound by their parliament’s decisions without protecting their own freedom to act, a break-up of Europe would be a more probable outcome than its deeper integration.” Faced with accusations of attempting to sideline national parliaments, he later explained that he never meant to question parliamentary autonomy.

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