Germany's GDP: An Ominous Sign

| About: iShares MSCI (EWG)

Germany's Q2 GDP came in at +0.1% vs. the expected 0.5% - in other words, they missed contracting by 0.1% (more details here).

The significance of this drop can't be overstated. Germany is the key to the EU, as their survival hinges on Germany's strength during the upcoming age of austerity. If Germany were to slip into a recession, the EU could easily dissolve. Over 50% of Germans want out and their federal elections are slated for 9/13, which means things could get ugly. Unfortunately, GDP numbers are often revised lower, so a recession (2 consecutive quarters of contraction) is becoming more likely by the day. A key meeting will take place between Merkel and Sarkozy later today. I'm sure they will try to appease the markets, but do not be misled: things are bad, and only getting worse.

For greater clarity, take a glance at the world's top 5 economies. The charts illuminate each country's GDP (in millions), according to the IMF in 2010.

Below is a look at the top 5 economies' Q2 2011 GDP readings.

  • U.S. (1.3%)
  • China (9.5%)
  • Japan (-1.3%)
  • Germany (0.1%)
  • France (0%)

Excluding China, roughly 40% of the world's GDP (USA + Japan + Germany + France) grew an aggregate 0.1%. The picture is becoming clearer. Please prepare adequately. A recession is on the horizon.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.