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Illustration: Lazaro Gamio/Axios

While Brexit has captured the world's attention, the bigger story is happening in Germany.

Driving the news: Germany is headed almost certainly for a significant slowdown in growth and very possibly into a recession. Which route the country takes has major implications for Europe and the rest of the world.

After recording zero growth in the fourth quarter of 2018, narrowly avoiding back-to-back quarters of economic contraction, one of Germany’s most prestigious research institutes Thursday cut its expectations for German growth this year by almost half.

The Munich-based Ifo Institute also said the pace of employment growth is decelerating. That followed data showing the country's all important manufacturing sector had significantly slowed, badly undershooting economists' expectations.

  • That's a major problem for Germany because exports make up about half of its GDP.

"Germany's economy is really exposed to any shifts in the international market," George Friedman, founder and chairman of Geopolitical Futures, tells Axios. "You have a problem with the largest economy in Europe not really being in control of its own economy. So in that sense it's the most dangerous country in Europe because it's the most important country and incredibly vulnerable."

The big picture: As the driving economic and political force in the euro zone, and the world's third largest growth engine, Germany is expected to help pull its neighbors out of an economic malaise, but right now it's reflecting the broader weakness.

The 28-member bloc is facing widespread growth declines (Italy is in recession, Sweden just avoided one) and political instability from Brexit and growing anti-euro populism.

  • "At this point the German economy is more the victim of problems in the global economy than the cause," says Jeromin Zettelmeyer, a senior fellow at the Peterson Institute for International Economics.

However, Zettelmeyer believes Germany still has some lifelines because its domestic economy remains strong and the ECB has positioned itself to help give Europe a boost. Germany could also pass fiscal stimulus, if lawmakers can agree on a bill.

What to watch: "If you see services slowing, consumer confidence going down significantly and payroll numbers falling, a softening of the labor market, one should start worrying more," Zettelmeyer tells Axios. "The other thing to watch is how sustained is the decline in industrial production? If we see another decline in industrial production next month I would really be more worried."

Go deeper

Updated 46 mins ago - Sports

Swimmer Chase Kalisz first American to win Olympics gold medal

Chase Kalisz of Team United States celebrates after winning the Men's 400m Individual Medley Final on day two of the Tokyo 2020 Olympic Games at Tokyo Aquatics Centre in Tokyo, Japan. Photo: Al Bello/Getty Images

Swimmer Chase Kalisz has become the first Team United States Olympian to win gold at the Tokyo Games.

The big picture: The Rio 2016 silver medalist's winning time in the men's 400 meters Individual Medley Final was 4 minutes 9.42 seconds. His teammate Jay Litherland took silver, .86 seconds behind him.

California's largest wildfire razes homes as 88 huge blazes burn in U.S.

Firefighters on the scene as dozens of homes burn during the Dixie Fire in the Indian Falls neighborhood of unincorporated Plumas County, California, on July 24. Photo: Josh Edelson/AFP via Getty Images

Flames from California's biggest wildfire were engulfing homes in the state's north overnight — one of 88 large blazes raging in the U.S.

Driving the news: The Dixie Fire, which erupted July 14 near the origin of the deadly 2018 Camp Fire in Butte County, was tearing through the community of Indian Falls, per AP.

Golfer Bryson DeChambeau will miss Olympics after testing positive for COVID

Bryson DeChambeau of the United States on the 18th tee during Day Two of the 149th Open at Royal St George’s Golf Club on July 16 in Sandwich, England. Photo: Andrew Redington/Getty Images

Golfer Bryson DeChambeau has tested positive for COVID-19 and will miss the Tokyo Olympic Games, USA Golf announced late Saturday.

What's happening: "Patrick Reed will replace DeChambeau and is undergoing the requisite testing protocol" Sunday and Monday before his expected departure for Japan, per a USA Golf statement.