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Pandemic Plunges German Economy Into a Record 10% Slump – Yahoo Canada Finance

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Germany’s Economic Slump Shows Scale of Europe’s Challenge

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(Bloomberg) —

Germany’s economy shrank the most in at least half a century in the second quarter, outlining the scale of the challenge facing Europe after the devastation of virus restrictions that slammed businesses and households.

The 10.1% drop in output in the region’s largest economy is a harbinger of worse figures elsewhere. Spain, France and Italy will probably report even deeper contractions on Friday, reflecting a recession that prompted an unprecedented policy response from governments.

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While indicators show a rebound is already underway, the threat of job losses as well as mounting concerns about a resurgence in viral outbreaks risk slowing the return to pre-pandemic levels.

Companies across Europe have seen sales plunge, and many are cutting jobs to streamline for a prolonged period of weaker demand in their sectors. Aviation and travel have been particularly hit, and Airbus SE on Thursday said it would pare back production. Volkswagen AG cut its dividend after it recorded a first-half loss, though the German car maker expects a gradual recovery to continue in the second half.

In Germany, consumer spending, exports and investment all fell in the second quarter. The pace of the rebound will rely in part on the effectiveness of the government’s 130 billion-euro ($153 billion) stimulus approved in June and how fast demand for German exports picks up. But the outlook is hugely uncertain, even after an unprecedented European Union fiscal deal championed by Germany and France.

What Bloomberg’s Economists Say…

“We estimate that social distancing rules, together with consumer and corporate caution, will put a ceiling on the recovery of 3-6%compared with pre-crisis norms. Weak external demand is also likely to be a limiting factor with many parts of the world struggling to get the virus under control.”

–Jamie Rush. Read the full REACT

A similar picture is playing out across the euro-area, where governments have stretched their budgets on health and welfare spending, and the European Central Bank launched an emergency bond-buying program to get the economy through the crisis.

Job cuts remain a major risk for the outlook. Germany’s national airline Deutsche Lufthansa AG is slashing thousands of jobs, and car maker Daimler AG is reducing hours for some workers for a year.

In a separate release, the European Commission’s indicator for confidence in the euro-area outlook rose more than economists expected in July, with businesses becoming more upbeat about demand. Still, at 82.3, the index is more than 20 points below its level in February. Unemployment in the region rose to 7.8% in June, the highest since early 2019.

“There will be a strong rebound in the third quarter,” said Aline Schuiling, an economist at ABN Amro. “But if I look at the monthly activity data or the high frequency data, what you can see for July is that parts of the economy continue to be disrupted and that activity is still well below the level before the outbreak of the virus.”

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China Wants Everyone to Trade In Their Old Cars, Fridges to Help Save Its Economy

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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.

That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.

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German Business Outlook Hits One-Year High as Economy Heals

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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.

An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.

“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”

A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.

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There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.

Even so, the start of the year “didn’t go great,” according to Fuest.

“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”

Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.

“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”

Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.

–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.

(Updates with more comments from Fuest starting in sixth paragraph.)

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Parallel economy: How Russia is defying the West’s boycott

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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.

Officially, Apple does not sell its products in Russia.

The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.

But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.

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Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.

Zoya bought the watch without a moment’s delay.

The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.

“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.

“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”

Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.

But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.

Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.

The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.

 

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