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Illustration: Lazaro Gamio/Axios

The Dow's 800-point fall grabbed headlines, but the real warning about the global economy's dire health comes from Europe. The German economy shrank in the second quarter, showing negative growth for the second time in 4 quarters.

Why it matters: Germany is being decimated by the global downturn in manufacturing and trade that has weighed extensively on major exporting countries. The downturn is likely coming for other economies as well, experts say.

  • "Germany is a more export-oriented economy than even China, so in some respects it’s the canary in the coal mine," Milton Ezrati, chief economist at Vested and former economics head at asset manager Lord Abbett, told Axios.
  • "When people say the U.S. economy can’t continue to grow when the world is in recession, what’s happening in Germany is indicative of the fact that the world is in recession," Ezrati said.

The big picture: Germany is the largest economy in Europe and the growth engine of the broader eurozone economy. As such, it was not the only economy to show its suffering Wednesday.

  • The British economy also shrank in the second quarter, as did with Sweden, and the eurozone broadly grew just 0.2%, half its total from the first quarter.
  • China, the world's No. 1 trading nation, also is showing signs of stress. Its industrial output reading for July was the weakest in 17 years, and it reported much weaker-than-expected investment and retail sales numbers.

Be smart: In a global economy, “U.S. economic developments affect the rest of the world, and the reverse is also true,” Fed Chair Jerome Powell said last month.

Yes, but: Seema Shah, chief strategist at Principal Global Investors, predicts the downturn could be delayed until 2021.

  • “The U.S. economy is clearly weakening and risks are piling up. Capex will inevitably slow further, but under the assumption that the trade war doesn’t escalate further, it will not weaken so much as to tip the U.S. into recession," Shah wrote in a note to clients.
  • "The Fed pivot in early 2019, global central bank easing, China stimulus and the reversal of its deleveraging process will support the global economy," Shah said.

Where it stands: The 2 levers that have saved the economy in previous times of crisis look exhausted.

  • Central bankers have clearly gotten the message and are cutting interest rates at a level not seen since the financial crisis. However, studies show monetary policy is not as powerful as it once was.
  • The world is already deeply in debt and democratic institutions are extremely polarized, making government spending more difficult as well.

Go deeper

Off the Rails

Episode 3: Descent into madness

Photo illustration: Sarah Grillo/Axios. Photos: Tom Williams/CQ-Roll Call, Chip Somodevilla/Getty Images

Beginning on election night 2020 and continuing through his final days in office, Donald Trump unraveled and dragged America with him, to the point that his followers sacked the U.S. Capitol with two weeks left in his term. This Axios series takes you inside the collapse of a president.

Episode 3: The conspiracy goes too far. Trump's outside lawyers plot to seize voting machines and spin theories about communists, spies and computer software.

President Trump was sitting in the Oval Office one day in late November when a call came in from lawyer Sidney Powell. "Ugh, Sidney," he told the staff in the room before he picked up. "She's getting a little crazy, isn't she? She's really gotta tone it down. No one believes this stuff. It's just too much."

Convicts turn to D.C. fixers for Trump pardons

Trump confidante Matt Schlapp interviews Jared Kushner last February. Schlapp is seeking a pardon for a biotech executive. Photo: Samuel Corum/Getty Images

A flood of convicted criminals has retained lobbyists since November’s presidential election to press President Trump for pardons or commutations before he leaves office.

What we're hearing: Among them is Nickie Lum Davis, a Hawaii woman who pleaded guilty last year to abetting an illicit foreign lobbying campaign on behalf of fugitive Malaysian businessman Jho Low. Trump confidante Matt Schlapp also is seeking a pardon for a former biopharmaceutical executive convicted of fraud less than two months ago.

GOP plots payback for deplatforming Trump

Illustration: Sarah Grillo/Axios

Capitol Hill conservatives are gaming out a multi-front war on the tech industry as retribution for deplatforming President Trump and others on the right, congressional sources tell Axios.

Why it matters: When you're in the minority, you figure out who you are as a party. With Republicans now looking up at the Democrats, they're searching for a unifying issue. This is one, at least for now.