"Quarter-to-quarter GDP growth is unlikely with both retail sales and industrial output on the wane," it argues. That sounds about right. It looks increasingly likely that the German economy will contract this quarter, and if that keeps up over the summer it will be in recession.

True, employment keeps rising but, rather like this country over the last decade, very few of the new jobs go to Germans – which may, not terribly surprisingly, explain why immigration has become such a hot political issue.

HFE estimates that 354,000 immigrants, mostly from central Europe, found jobs in Germany in the last 12 months, pushing the employment total up even while the number of jobless Germans remained broadly static. A virtually unlimited supply of migrant labour means that wages have barely risen even as the country approaches full employment.

True, the decline in retail sales and industrial output could be a cyclical slowdown. Most major economies apart from the US are facing one right now. But Germany also faces some serious longer-term challenges.

Germany's banking system looks the wobbliest in the world right now, with the once mighty Deutsche Bank hitting fresh lows every week. Krisztian Bocsi

President Trump's trade wars look likely to pose an acute challenge to its once mighty auto industry, and at precisely the same time as it is challenged by diesel scandals and the switch to electric and driverless cars (not to mention the threat to the British market of a no-deal Brexit).

Trump may be foolish to stoke a trade dispute, but it is hard to understand why the EU imposes 10 per cent tariffs on American cars while the US only imposes a 2.5 per cent charge on all those BMWs and Porsches that flood into the country every year. It doesn't exactly sound fair, and the US probably isn't going to tolerate it any longer.

Other major industries such as steel, machine tools and aircraft may well be caught up in the trade crossfire next.


Manufacturing, which Germany specialises in, is always the sector most vulnerable to tariffs, and its ridiculously huge trade surpluses, running to more than 8 per cent of GDP, will always put it in the firing line.

It's hard to understand why the EU imposes 10 per cent tariffs on US cars while the US only imposes a 2.5 per cent charge on all those BMWs and Porsches that flood into the country every year. Matthias Schrader

It doesn't stop there. The European Central Bank is winding up its programme of quantitative easing, which is all that has kept the eurozone economy afloat for the last two years.

If Europe slows down, Germany will slow down with it. Its banking system looks the wobbliest in the world right now, with the once mighty Deutsche Bank hitting fresh lows every week. If it needs a bailout, the consequences will be cataclysmic. Meanwhile, Germany's surpluses have left it uniquely exposed to a crash.

According to calculations by Die Welt, it is now the second largest creditor nation in the world: Germany is owed US$2 trillion by the rest of the world compared with less than $500 billion a decade ago. If there are defaults on that, even a country with its financial strength will be in trouble.

Over 13 years in power, Merkel has presided over one of the most dangerously unbalanced economic models in the world. Suppressing wages first through restraint then through immigration has enabled Germany to build up vast trade surpluses and has fuelled profits at the industrial giants of the DAX.

But it has left the country dangerously exposed to trade disputes, as well as to a crash, while sucking the life out of the rest of the eurozone.

It has left the country ill-prepared for the 21st century: if there are any German internet companies worth knowing about they are keeping themselves well hidden. It has worked up until now, but it may well fall apart at any moment, and possibly spectacularly so. At the very least, a sharp slowdown now looks inevitable. Migration might be the row this week. But it is a downturn in the German economy that will finally topple Merkel – and that is not far away.

The Daily Telegraph

The Telegraph London