Europe receives more bad news as fears of recession intensify

German retail sales fell 8.8% in June from the same month a year ago, according to preliminary data from the country’s Federal Statistics Office released on Monday.

It’s the biggest drop since authorities started keeping records in 1994.

The German economy is in a grim situation. Soaring inflation has dampened people’s purchasing power, while a looming energy crisis threatens to tip the country into recession.

Last week, official data showed the country stagnating in the second quarter.

While the European Union’s economy grew by an unexpected 4% in the second quarter compared to a year ago, a slowdown in Germany – its manufacturing heartland – could help to reverse it. The country accounts for around a quarter of the EU’s gross domestic product.

And the ongoing energy standoff between Europe and Russia means a recession is still in sight.

Germany is particularly vulnerable. It has long relied on natural gas exports from Moscow to power its homes and heavy industry.
While Germany has managed to cut Russia’s share of its gas imports to 35% from 55% before the start of the war in Ukraine, a sudden break could wipe out 220 billion euros ($226 billion) of its economy over the next two years, according to five of the country’s top economic institutes.
It’s a very real possibility. Russia has already turned off the taps of several European countries and energy companies in recent months. Over the weekend, Moscow cut off supplies to Latvia for “breaching gas withdrawal conditions”, without providing further details.
Anticipating the worst, Germany has already activated the second phase of its three-stage emergency gas plan, bringing it one step closer to rationing supply to industry, a move that would deal a blow to its economy and, by extension, to the whole of Europe.

— Nadine Schmidt and Mark Thompson contributed reporting.


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