German economy stalling as export demand weakens

GERMANY’S economy will slow to a crawl this year as the eurozone powerhouse’s industry struggles to dig itself out of a serious crunch.

GDP will grow by 0.6pc this year, the country’s central bank estimates, slashing its outlook from the 1.6pc forecast in December. This is the slowest growth since 2013. A modest recovery is expected next year, when officials predict growth will return to 1.2pc.

“The German economy is experiencing a marked cool-down,” said the Bundesbank. “This is mainly due to the downturn in industry, where lacklustre export growth is taking a toll.”

The crucial car industry is struggling from weak export demand. The warning was reinforced as industrial production in April dived 1.9pc month on month, the sharpest drop in four years.

Almost every part of the industry suffered, with falls in consumer goods, manufacturing, intermediate goods and capital goods. Exports fell 3.7pc, indicating weak global demand is still holding back growth.

“Only a slight increase in GDP is to be expected in the second and third quarters of the year,” the Bundesbank said. “The economy is initially likely to remain in its dichotomous state.”

Economists said the situation could get worse before it gets better. “The weakness of global trade appears to be filtering into investment goods production, and our set of indicators for business fixed investment spending warn that there could be more negative news,” said Stefan Schilbe at HSBC. “The renewed trade tensions are likely to aggravate the problem.”

A global stagnation is a possibility, according to Pau Morilla-giner at London and Capital. “We are heading for a prolonged stagnation, driven as much by political uncertainty as underlying fundamentals,” he said.