RSS   Newsletter   Contact   Advertise with us

Germany: Economy stagnates in the fourth quarter of 2018

Share on Twitter Share on LinkedIn
Staff Writer | February 15, 2019
Europe’s biggest economy narrowly avoided a technical recession in the fourth quarter with flat growth recorded over the previous quarter in price-, seasonally- and calendar-adjusted terms.
Germany
Europe   Compared to the same quarter a year earlier, the economy grew 0.9%
Although the result contrasts the 0.2% quarter-on-quarter contraction in the third quarter, it still underwhelmed expectations of a small rebound following the release of national accounts for the full year.

Compared to the same quarter a year earlier, the economy grew 0.9%, which is down from the third quarter’s 1.1% year-on-year expansion.

While a detailed analysis of gross domestic product by expenditure is not yet available, domestic demand is expected to have buttressed the economy in the fourth quarter.

Domestic demand should have been driven by greater fixed investment growth, particularly in the construction sector, and a stronger increase in public consumption.

Meanwhile, private consumption likely rose slightly.

Based on available new car registration data, growth in private consumption likely did not come on the tails of expenditure on durable consumer goods and suggests that the automotive sector had another weak performance in the final quarter.

Meanwhile, in the previous quarter, net exports negatively contributed to economic growth and the external sector is unlikely to have provided a positive stimulus in the fourth quarter: Exports and imports of goods and services are expected to have grown at roughly the same pace, according to FocusEconomics Consensus Forecasts.

Looking ahead, the German economy is still expected to record robust growth this year, albeit at a more moderate pace, powered by domestic demand.

A tightening labor market should drive up wages, in turn supporting private consumption, while a more fiscally expansionary budget this year will propel government expenditure.

The external sector, however, is unlikely to provide a significant stimulus to the economy this year, with downside risks looming large.

The key downside risks to the external sector remain the imminent, yet still very uncertain, Brexit.

A possible flare-up in tension between the U.S.

and China after the truce ends in early March, as well as existing trade tensions between the European Union and the United States, further cloud the outlook.

In addition to the aforementioned risks, Carsten Brzeski, chief Germany economist at ING, added that the poor performance of the German economy is the second half of 2018 has also been due to “the lack of investment in digital and traditional infrastructure, delays of railways and airlines as well as hardly any significant new structural reforms in the last ten years”.

Expanding upon this point, Brzeski added that “there are still plenty of reasons to remain optimistic […].

Economic fundamentals remain solid and from here on, chances of a (gradual) rebound are still much higher than chances of yet another disappointment.”

FocusEconomics Consensus Forecast panelists see the economy expanding 1.7% in 2019, which is down 0.1 percentage points from last month’s forecast.

For 2020, the panel forecasts GDP growth of 1.6%.


 

MORE INSIDE POST