The Bundesbank added to a growing list of negative indicators this week when it warned that Germany would likely enter recession in the third quarter.

The bank is projecting ‘lackluster’ growth over the current quarter, culminating in what’s expected to be a slight contraction. Since the German economy shrunk by 0.1% in the second quarter, such a result would represent a technical recession, which in and of itself is no cause for serious concern. However, if certain negative trends in global trade patterns persist, then Germany’s export-reliant economy could be in for a bumpy ride for the foreseeable future.

Analysis

Germany – a country known for its robust industrial policy and prudent fiscal stewardship – is seldom the negative exception on a continent that is otherwise still in growth mode. But the nature of the current disruption in global markets – trade barriers, supply chain disruptions, and currency volatility – strikes at the heart of Germany’s export-dependent model.

It is thus no surprise that flagging industrial production and a sharp drop in German exports are behind the country’s recent economic doldrums. Over the past year, exports have fallen by approximately 8% and industrial production has dropped by 5.2%.

Though it’s undeniable that German manufacturing is reeling, there are still several bright spots for the economy. For one, despite a recent downward blip, the service sector has remained resilient. Real estate has also been booming alongside other euro zone countries.