Forget the ongoing trade war and China’s slowing growth — Deutsche Bank thinks “the biggest risk to the global economy comes from Europe.”
“Data has stabilized in some areas, e.g. with France’s activity improving as the ‘yellow vest’ protests fade, [but] other areas show weakness,” David Folkerts-Landau, group chief economist at Deutsche Bank, wrote in a major “House View” note sent to clients on Tuesday.
“The German manufacturing sector is flirting with recession and the Italian economy is in outright contraction. The ECB is unlikely to shift policy substantively in the near-term, leaving the economy fragile and exposed.”
Deutsche Bank expects GDP growth of just 0.9% in 2019. As a result of this fragility, Deutsche Bank fears that a shock such as an escalation of the trade war between the US and China or a disorderly no-deal Brexit could tip Europe into recession.
“Growth continues to remain low and the cycle is vulnerable,” Deutsche Bank wrote.
The bank also thinks that the political apparatus of the EU will be weakened after the upcoming European elections in May.