German economy just avoids recession but weaker exports take toll

Germany narrowly avoided falling into recession in the second half of last year as weaker exports dragged Europe’s largest economy to stalling point during the final three months of 2018.

The German economy recorded zero growth in the fourth quarter, managing to just avoid a technical recession after reporting a contraction of 0.2% in the third quarter amid a slump in industrial output.

Germany narrowly avoids recession after stagnating in last quarter – business live

Several economists had previously warned that Germany was on the brink of recession because of consecutive monthly declines in factory output, with the country suffering from weaker levels of global demand and disruption at factories.

Tensions between the US and China have acted as a handbrake on global goods trade, while growth is slowing in the Chinese economy after years of rapid expansion. Sales of cars in China dropped last year for the first time in almost 30 years, affecting manufacturers across Europe.

New vehicle emissions tests introduced in the wake of the VW emissions scandal have also caused disruption to factories across Europe, including in Britain. Manufacturing accounts for about a fifth of the Germany economy, about double the size of Britain’s industrial base.

Overall growth for 2018 in Germany was 1.5%, marginally above the 1.4% expansion recorded in Britain.

Analysts said that domestic demand in the German economy – predominantly from investment in construction and machinery as well government spending – helped it to avoid recession.

Growth in consumer spending was, however, subdued, while net exports were a severe drag on headline GDP growth.

Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said there were some reasons to hope German GDP growth would recover at the start of 2019.

“There may be a further pick-up in auto production as the emissions testing backlog is cleared; and household real incomes should rise due to falling headline inflation,” he said.

Source: Read Full Article