Macroscope | Why the euro zone is a bigger worry than China’s economic slowdown

For a snapshot of financial market anxiety about a global economic slowdown, look no further than the performance of the Dax, Germany’s benchmark stock market index, on Tuesday.

In early morning trading, the gauge shot up in response to Beijing’s pledge of deeper tax cuts as part of its efforts to stimulate China’s economy. As exports account for more than 47 per cent of Germany’s gross domestic product, a recovery in China – Germany’s biggest trading partner outside the euro zone – is crucial to the country’s economic prospects.

Germany, Europe’s largest economy and the world’s fourth-biggest, is getting the worst of both worlds. China’s economic slowdown has helped hurt demand for Germany’s exports, with new orders last month suffering the sharpest fall in six years, according to IHS Markit, a data provider. Meanwhile, the German car industry, a mainstay of the country’s economy, has been forced to slow production due to delays in meeting the EU’s new emissions standards, dragging down industrial output over the past several months.

Germany’s woes are driving a slowdown across the entire euro zone, whose economy is expanding at its slowest pace in four years, according to data from IHS Markit last month. France has been hit by the “yellow vest” protests over declining living standards, while Italy, whose new populist government is at daggers drawn with the European Commission, is on the verge of a recession.