BERLIN: A slump in exports sent Germany’s economy into reverse in the second quarter, data showed, as its manufacturers bore the brunt of a global slowdown amplified by tariff conflicts and uncertainty over Brexit.
Gross domestic product (GDP) fell 0.1 percent quarter-on-quarter, in line with a Reuters poll of analysts, as several observers raised prospects of another contraction in the third quarter, and the industrial sector suggested the government should ditch its balanced budget and kick-start growth via fiscal stimulus. On a calendar-adjusted basis, the annual growth rate in Europe’s largest economy slowed to 0.4 percent in the second quarter from 0.9 percent in the first, yesterday’s Federal Statistics Office data showed. For 2019 overall, Berlin expects growth of just 0.5 percent.
“The bottom line is that the German economy is teetering on the edge of recession,” Andrew Kenningham from Capital Economics said, noting that exporters were facing an even bigger potential hit if a threatened no-deal exit from the EU by Britain actually materialised on Oct. 31.
Many economists define a recession as two consecutive quarterly contractions. Despite yesterday’s headline quarterly figure matching expectations, markets also took fright, with the yield on Germany’s benchmark 10-year government bond hitting a record low of -0.624 percent .
The global slowdown has impacted growth across western Europe, but Germany’s traditionally export-reliant economy has been particularly vulnerable. The statistics office said that net trade slowed economic activity as exports recorded a stronger quarter-on-quarter decrease than imports. Construction was also a drag, after the sector pushed up overall growth in the first three months due to an unusually mild winter.
“Today’s GDP report definitely marks the end of a golden decade for the German economy,” Cars ten Brzeski from ING said. “It was a decade of strong growth on the back of earlier structural reforms, fiscal stimulus, localisation at its peak and steroids provided by the ECB in the form of low-interest rates and a relatively weak euro.”
Domestic demand has become an important growth driver for Germany in recent years as consumers benefit from record-high employment, inflation-busting pay hikes and low borrowing costs. Positive contributions came from that source in the second quarter, as household consumption, government expenditure and gross fixed capital formation increased on the quarter, the statistics office said. But analysts suggested the positive impact of those factors was waning.
“For a year now, the German economy has been only crawling forward,” UniCredit analyst Andreas Rees said, with the many uncertainties facing German exporters presaging more pain in the rest of the year. “Besides Brexit, this is above all the US-Sino trade dispute and possible US tariffs on European cars,” Rees said. ING’s Brzeski said that, with trade conflicts, global uncertainty and the struggling automotive sector having “finally brought the German economy to its knees,” a national debate about fiscal stimulus would get more heated. – Reuters