Europe's Largest Economy Grinding to a Halt

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With all the problems going on in Europe, there is a huge question mark as to whether Germany, Europe's largest and strongest economy, will get dragged over the cliff along with the rest of the Eurozone. Recent statements by the Bundesbank are adding some weight to investors' fears.

Consider German Growth May Grind to a Halt as Region’s Crisis Saps Exports

Growth in Germany, Europe’s largest economy, may slow to a near standstill next year as the region’s debt crisis saps demand for exports, the Bundesbank said.

The Frankfurt-based central bank cut its 2012 growth forecast to between 0.5 percent and 1 percent from a June prediction of 1.8 percent, and said a “pronounced” period of economic weakness can’t be ruled out if the crisis worsens.

“The significant weakening in foreign demand coupled with financial market nervousness” means “the German economy faces more difficult terrain in the months ahead,” the Bundesbank said in its monthly bulletin published today. There are “weighty” risks to the outlook, it said.

Also, Germany's stock market index, the DAX, has just broke through its neckline on a head-and-shoulders top—"one of the most reliable trend-reversal patterns" according to Investopedia—projecting a 12% decline back to the September lows. (See comment below for how this is calculated)

germany dax head and shoulders
Click here for larger image

(A correction below the head-and-shoulder's neckline is estimated as being equal to the size of the highest point above, in the head.)

On this side of the Atlantic, markets are also breaking down today as investors fret over the failure of the bi-partisan supercommittee to reach any sort of agreement over making much needed cuts to the federal deficit. The most worrisome aspects of this to the economy are the threat of a U.S. downgrade by credit ratings agencies, uncertainty over tax increases, and the possible end to millions receiving unemployment benefits set to expire year-end.

In positive news, the Chicago Fed announced today that its national activity index—a weighted gauge of 85 different economic indicators—edged up slightly for October, adding to the weight of a slow but strengthening U.S. economy in the face of European market risk. For a more in-depth analysis on this subject, please read Could Credit Markets Kill a Fledgling U.S. Economic Recovery? by our in-house analyst Chris Puplava.

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About Cris Sheridan