An exchange traded fund that invests in Germany was down 3.5% before the bell Tuesday after the country said its economy slowed in the second quarter.
Gross domestic product rose by only 0.1% in the quarter as first-quarter figures were revised lower. The surprisingly weak report from the Europe’s biggest economy shook global markets on Tuesday and stirred the region’s debt crisis.
The data revealed “a turning point in the German business cycle,” Andreas Rees, economist at Unicredit, told the Financial Times. “It is a regime shift. The period of exuberant growth is now behind us.”
Germany is the only European nation that is in a position to lend to neighboring economies in the Eurozone. The country has the richest and largest economy in the European Union.
The iShares MSCI Germany (NYSEArca: EWG) is down 5.3% year to date and was set for a large decline on Tuesday, based on premarket trading.
Investors will be eying the outcome of the meeting today between Angela Merkel, chancellor of Germany, and Nicolas Sarkozy, president of France. Critics claim Merkel has no sense of urgency to help calm the crisis in the European Union, reports Nicholas Kulish for The New York Times.
“Germany is going to get killed if it takes over the debt of the rest of the eurozone, and if the euro goes than so do its exports and its banks are exposed,” said Avi Tiomkin, a New York advisor to hedge funds, on Forbes.
Already, economists say the proposed eurobonds are a step too far, and would face headwinds between voters and politicians, especially in Germany.
“It’s as if there is a black cloud floating overhead but nothing has fallen on us,” said Markus Ponick, a teacher in Berlin. “The effects of this crisis are imperceptible here,” he said on The New York Times. Although the government has made cuts, they have been “cleverly chosen” to spare the public pain.
About 706,000 more Germans are employed than May of last year, according to a government measure. In fact, some estimates claim that there are more jobs available than qualified workers. The unemployment rate is at 7% in Germany, compared to about 9% in the U.S.
Time will tell what happens next for Germany, and since the economy is driven by exports, sudden consequences could pop up as the global economy slows down. Some economists think if there was a sudden drop in export activity, Germany would cut lending to any neighbors, and to the European Union at large.
iShares MSCI Germany
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Tisha Guerrero contributed to this article.