Europe’s Paymaster Heading for Recession: Economists

A stream of weak economic figures from Germany is prompting economists to predict that the country is fast approaching a recession — and the vortex of the euro zone's economic crisis.

Europe’s Paymaster Heading for Recession: Economists
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Figures released on Thursday showed exports in September fell at their fastest pace since December 2011 and on Tuesday, data revealed that manufacturing and services activity shrunk for the sixth consecutive month in October.

Industrial production figures released on Wednesday revealed a 1.8 percent fall in September from August, well below expectations of a 0.7 percent decline.

Despite some positive retail sales figures, German government advisors forecast that the economy would grow by just 0.8 percent in 2013, saying in their annual report that "the low-point of economic momentum in Germany will probably be reached in the fourth quarter."

Thomas Harjes, economist at Barclays Research, agreed with the gloomy forecast for Germany.

"The near-term outlook for industrial production is very weak and any positive surprise in third quarter gross domestic product (GDP) should be offset in the fourth quarter where a contraction looks increasingly likely," Harjes wrote in a Barclays research note on Wednesday.

When Germany's third quarter GDP figures are released next Thursday economists such as James Ashley at RBC Capital Markets are forecasting modest growth of 0.2 percent. However, Ashley adds that a contraction looks "increasingly likely" in the near future.

"What [the] data underscore, is the increasingly apparent slowdown in Germany as – despite its strong domestic fundamentals – the economy continues to be buffeted by the global financial headwinds," he wrote.

"That leaves [the] fourth quarter starting from a weak position; and, in conjunction with the soft survey readings we have observed in recent months in Germany, we think that a contraction in fourth quarter GDP looks increasingly likely."

Mario Draghi, head of the European Central Bank (ECB), also responded to the latest round of data saying that Germany was no longer protected from the euro zone crisis.

(Read More: Euro Zone Slowdown hurting Germany Says Draghi)

"Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy," Draghi said on Wednesday.

German businesses have offered insight into how the crisis is affecting them with the release of third-quarter earnings. Commerzbank, Germany's second biggest lender and Siemens, its most valuable company, announced an earnings miss and 6 billion euros ($7.6 billion) worth of cost cutting measures respectively on Thursday.

German Chancellor Angela Merkel, arguably the world's most powerful woman, has long been able to prevent euro zone rot spreading to the German economy. But with growing unemployment and more job cuts forecast as German businesses scale back their workforces, Merkel and the center-right governing coalition are looking to appease an increasingly nervous populace.

On Monday, the government announced social welfare measures, including scrapping unpopular health surcharges and introducing extra child benefits which it hopes will boost its popularity ahead of elections next September.

As Europe's paymaster, Germany's fall from economic grace is perturbing to economists. Thorsten Polleit, chief economist at Degussa Goldhandel, told CNBC that Europe was "heading for a very severe recession" as Germany started to falter.

"We're heading for a severe recession in the 17 euro zone member states, we may see a contraction of up to 1.5 percent in 2013 and becoming more severe, I would say, in 2014."