Germany in 'crisis' as huge economic slump dragging down Eurozone growth

Chancellor Olaf Scholz has been in power since 2021 (Image: Getty)

Germany’s economy is grappling with a severe downturn, impacting the overall growth of the Eurozone.

A recent survey by HCOB Flash Eurozone Composite PMI revealed that Europe’s largest economy experienced an unexpected decline in output this month, marking the first such drop in four months.

This decline is primarily driven by a significant decrease in manufacturing production.

Factory output in Germany fell at its fastest rate in nine months, while growth in the services sector slowed to its weakest pace since March.

This decline has pushed the Eurozone’s private sector output towards stagnation in July.

Christine Lagarde, president of the European Central Bank (Image: Getty)

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "This looks like a serious problem. Germany’s economy fell back into contraction territory, dragged down by a steep and dramatic fall in manufacturing output.

"The hope that this sector could benefit from a better global economic climate is vanishing into thin air.

"With the composite PMI now below 50, our GDP Nowcast predicts that economic output will shrink by 0.4 percent in the third quarter compared to the second quarter.

"While it is still early days and many data points are yet to come, the second half of the year is starting on a very weak note."

The unexpected slump in Germany’s output is a significant concern for the Eurozone, given Germany's role as its largest economy.

The rapid decline in manufacturing output underscores the challenges faced by the sector, which has struggled to gain momentum, despite earlier hopes for a global economic recovery.

The data points to a challenging second half of the year for Germany and the broader Eurozone, with economic forecasts now suggesting a contraction in Germany’s GDP.

This downturn is likely to have ripple effects across the Eurozone, further hampering efforts to stimulate growth and stability within the region.