August 27, 2008 at 1:00 pm by Tom Lydon
Germany is facing the possibility of a recession, endangering any further expansion of its exchange traded funds (ETFs).
Two key surveys indicated that the business and consumer confidence is eroding in this one-time economic powerhouse, reports the Associated Press.
Two straight quarters of falling output defines a recession. June made for the third month of falling output, with a contraction of 0.5%. The business climate index fell from 97.5 points to 94.8 points this month. Although the country is experiencing falling unemployment, the trend has slowed and may put added pressure on consumer confidence.
German companies are cutting investment in equipment and construction during the second quarter, causing the economy to shrink for the first time in nearly four years. Christian Vits for Bloomberg explains that building investment dropped 3.5% from the year before, with investment in plant and machinery off 0.5% and consumer spending down 0.7%, according to the Federal Statistics Office in Wisbaden, Germany.
The stronger euro mixed with slower growth has stopped demand in Germany while inflation has threatened domestic spending. Exports and investments have slowed around the world, and this hits home in Europe’s largest economy.
Both NETS DAX Index (DAX) and iShares MSCI Germany (EWG) may feel the slowdown. The top weightings in EWG are in financial services (19%) and materials (17.8%), while DAX is heaviest in utilities (14.9%) and automobiles (14.8%). DAX is down 15% since its May 23 inception, while EWG is down 24.1% year-to-date.
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