German economy slows in worrying sign for global growth
Germany posts slowest annual growth rate since 2013, in latest sign of global slowdown Economists fear Germany could become a conduit for the Chinese slowdown to infect other economies.
FRANKFURT— The economic outlook for Europe and the world darkened after growth in Germany slowed sharply last year, hit by weaker exports to China and elsewhere, and softer demand at home.
While Europe’s largest economy probably narrowly avoided a recession at the end of last year, according to the country’s statistical agency, weaker German growth is ringing alarm bells across the continent, where swaths of companies are bound tightly to the German export machine.
The impact of the cooling Chinese economy is a particular concern: Germany, a maker of high-end cars and capital goods, is one of only few Western economies to have cracked China as a big export market. If that source of growth goes, economists fear Germany could become a conduit for the Chinese slowdown to infect other economies.
The statistics agency said Tuesday that the nation’s gross domestic product grew 1.5% in 2018 from a year earlier. That was down from 2.2% the previous year and marked the slowest annual rate since 2013. While the agency didn’t release fourth-quarter figures, it said the economy had stabilized in the last three months of the year following a decline in the third quarter.
Economists have zeroed in on recent soft German data as a possible sign of a turning point in the global economic cycle after years of muscular growth. Financial markets have seesawed as investors digested weaker trade data and moves by major central banks including the Federal Reserve to tighten monetary policy.
Germany is central to European growth and a bellwether of the global economy due to its exceptionally high engagement in world trade. After a decade of robust growth and with virtual full employment, the country has become an anchor in a continent whose largest economies, from the U.K. to France and Italy, are facing huge political and economic challenges.
But this role is now at risk. Germany’s export-oriented businesses have been buffeted in recent months by burgeoning foreign risks, including a possible messy Brexit, unrest in France, mounting U.S. protectionism and the China slowdown. Economists at the World Bank last week nudged down their forecast for global economic growth this year, but recent indicators suggest there is a risk of a sharper slide.
China is a particular concern because it is Germany’s biggest trading partner and a key driver of German corporate profits. Growth in German exports to China slowed to around 4% in November year-over-year, from double-digit levels earlier in 2018. Germany’s main stockmarket index, the DAX 30, has fallen more than 15% since the middle of last year.
“The German economy rises and falls with China,” said Joerg Kraemer, chief economist at Commerzbank in Frankfurt. He warned of a toxic cocktail of risks in China, including high debt at state owned companies and uncertainty linked to a trade war with the U.S.
The euro fell almost half a cent against the dollar to its lowest level in more than a week after the figures were published Tuesday, settling around $1.143, while Germany’s main stockmarket index slipped.
Germany’s auto industry has been hit by falling demand in China, which last year posted its first decline in new car sales in nearly three decades. While luxury-car makers such as BMW AG and Daimler AG’s Mercedes-Benz were able to buck the trend and sell more cars in China, big mass-brand makers such as Volkswagen AG suffered a big drop in sales.
Continental AG, a German auto-parts maker that supplies Volkswagen and many of the world’s biggest auto companies, said Monday that orders from car manufacturers had nosedived over the past few months in part because of weaker sales in China, causing the company to lower its earnings and sales outlook for the year.
Still, Tuesday’s GDP report was peppered with signs of Germany’s domestic economic strength. Employment hit an all-time high of 44.8 million, and the government reported a record budget surplus of 59.2 billion euros ($67.9 billion), or 1.7% of GDP.
But other parts of the eurozone face their own growth challenges. That is creating a headache for policy makers at the European Central Bank, which only this month phased out its 2.5 trillion euro bondbuying program.
Like Germany, Italy’s economy contracted in the three months through September, and appears to have entered recession—characterized as two successive quarterly declines— following a jump in borrowing costs as investors fretted over the government’s plans to add to an already large debt load.
In France, business surveys suggest a series of antigovernment protests have had a chilling effect on the country’s economy, which had accelerated slightly in the third quarter.
Away from those national problems, the eurozone as a whole appears to have suffered from a weakening of overseas demand for its goods and services during 2018.
That has prompted some forecasters to radically rethink their projections. Capital Economics, a London-based consulting firm, has lowered its 2019 growth projection to 1% from 1.8%.
“A variety of political concerns have prompted a sharp decline in business and consumer confidence, while industrial production data have been very disappointing,” it said in note to clients. “This suggests that an acceleration in domestic spending is no longer likely to offset the effect of slowing exports.”