The German economy – the fourth-largest in the world after the US, China, and Japan – received troubling news when the country’s the Federal Institute of Statistics reported that the economy contracted by 0.1% in the second quarter, due to a drop in exports, and raising fears that Europe’s economic powerhouse is on the brink of a recession.

Analysts have attributed the decline to the precipitous drop in foreign demand for German goods and the rise of additional customs barriers as a result of the ongoing trade war between the United States and China, which has left export-driven economies, like Germany, exposed to the fall-out from the dispute between the Americans and Chinese – two nations with far larger economic clout.

Germany’s gross domestic product shrank after growing by 0.4% in the first three months of the year. The reversal of fortunes for the German economy can be tied to the overall mood on the international markets, which, for the time being, is moving towards an emphasis on domestic production.

With Germany’s economy so heavily reliant on exprts, the latest indicators point to potential difficulties in the months ahead. most economists expect a further contraction of the GDP in the third quarter, which would put the German government in the position of having to acknowledge that the country is in a recession.

Troubling signs also include a 1% drop in the number of investments in Germany’s construction sector, an overall decline in household consumption, and rising public expenditures as a result of the migrant crisis and an ageing population.

The Germany government can still look forward to a large budget surplus of €45.3 billion, the equivalent to 2.7% of GDP, as it forges ahead in the hope of avoiding a major economic downturn.