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German economy narrowly avoids recession

February 15, 2019

 

Germany's economy stagnated in the fourth quarter of 2018, thus skirting a technical recession, as trade failed to support growth amid the global trade tensions and the uncertainty linked to Brexit. 

 

Gross domestic product was unchanged from the third quarter, when the economy shrunk 0.2%, preliminary data from the Federal Statistical Office showed on Thursday. Economists were looking for a modest increase of 0.1%. 

 

Two consecutive quarters of contraction would have meant the biggest euro area economy entered recession. 

 

The Economy Ministry had earlier said that the economy likely avoided a recession in the final three months of 2018, amid signs of rebound in the automobile sector, where activity was hampered by the implementation of the new WLTP emissions testing regime. 

 

Jack Allen, senior Europe economist at Capital Economics, told the BBC: "If you look at Germany across 2018 we've seen a pretty broad-based slowdown in growth. We've seen household consumption slow, we've seen business investment slow and we've seen export growth slow. 

 

He added: "What's particularly worrying is that the early signs for 2019 suggest that a strong rebound is unlikely." 

 

US tariffs on EU car exports, which US President Donald Trump has threatened, could have a major impact on Germany, Mr Allen said, but even if these are avoided the slowdown in the global economy means Germany is still only expected to grow by about 1% this year, compared with about 1.5% in 2018. 

 

However, Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said he was "optimistic" that the first quarter of this year would be better. 

 

"The January [economic] surveys were poor... but net exports won't be in free fall forever, and consumers' spending also ought to pick up." 

 

Resources: 

https://www.bbc.co.uk/news/business-47236841 

http://www.morningstar.co.uk/uk/news/AN_1550152704023199500/german-economy-narrowly-avoids-recession-in-q4.aspx 

 

 

 

 

 

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