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Recession risk in Germany highest in nearly 7 years amid trade, Brexit woes

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Recession risk in Germany highest in nearly 7 years amid trade, Brexit woes

The risk of a German economic recession has increased to the highest level in nearly seven years, according to the Macroeconomic Policy Institute, or IMK.

The independent academic institute's monthly forward-looking index for September pointed to a 59.4% probability of Europe's largest economy sliding into a recession over the next three months, the highest since 2012-end, up from a 43% chance estimated in August.

The domestic economy has weakened amid global trade tensions and uncertainty over Britain's departure from the EU, which are weighing on Germany's export-dependent manufacturing sector, the IMK noted.

Other warning signs include structural weakness in key industries like the automotive sector, as well as fewer job vacancies and a "gloomy mood in the German economy," it added.

The German economy contracted 0.1% in the second quarter, with economic indicators hinting at another expected contraction in the third quarter, which would mean a technical recession for the nation. International Monetary Fund European department head Poul Thomsen reportedly called on Germany to increase public spending to revive the economy and address long-term structural challenges, before it is too late.

"The hope that domestic demand could save Germany from a recession is increasingly fading," said Sebastian Dullien, scientific director of the IMK.

The European Central Bank announced a stimulus package Sept. 12, lowering its rate on the deposit facility and moving to reinstate bond purchases, at a monthly pace of €20 billion.