German economy is “stopping” as it might harm Portugal’s

  • ECO News
  • 27 August 2019

Economists contacted by Lusa consider that exist signs of the German economy slowing down, which might affect the Eurozone and Portugal.

“There is, indeed, the risk of recession in Germany. And, if severe, it will most certainly contaminate the Eurozone and Portugal”, João Borges de Assunção, Professor at Católica University, told Lusa. The Bundesbank, the German central bank, warned this week for a step back during this summer in the German economy, which happens to be the most powerful economy in Europe. These bad news come after a contraction in that economy being registered in the second trimester, raising the possibility of an incoming recession.

Borges de Assunção considers that “Germany has a budgetary margin to promote public investment over the next year”, however, the economist still shows his concerns over the Italian, Greek and Portuguese debts as well over the Spanish political uncertainty.

Sharing the same opinion is Pedro Lino, economist and administrator of Dif Broker and Optimize, who said to Lusa that “exist clear signs showing Europe’s major economy to stop with investors waiting for zero or negative interest rates over the next decade”.

According to Lino, it would be the right moment for the Eurozone to launch an infrastructures programme, “making use of the need to implement new technologies like 5G that will open the doors to a new world of possibilities”. “Financing is at levels never seen before as the only way to take advantage of this is through productive investment, meaning to stimulate growth”.

This week, the German 30-Y bonds’ negative yield made headlines all across the globe, after demand dropped to less than half of the expected. Negative yielding is when “investors are willing to pay, in this case, governments to keep their money safe”, according to JP Morgan.

“No one can seat comfortably while noticing the core laws of Finance are being challenged every day”, Luís Filipe Garcia said, an economist of IMF (Informação de Mercados Financeiros). The economist recalled that since five years ago that 2Y German bonds have negative yields. Thus, “one can’t say anymore that we are at a transitory situation”.

“It’s a bit like if the Gravity Laws stopped working and we were left out of answers because all our technology that is based on gravity stopped working as well”, Garcia explained, adding that “in Finance, structural negative-yielding force us to rethink the whole thing”.

The economist even highlighted that “issuing long-term bonds at very low yields might imply that a recession is on its way”, explaining why yields are “incredibly” low. The combination of three factors can explain it: 1) the excessive liquidity in the financial market, 2) the lack of an alternative for investment and 3) the expectation for monetary stimulus to help the bonds’ prices to go up again. “In that sense, there is a reason to be concerned”.