German economy flirts with recession

Germany’s economy stalled in the final quarter of 2018, just skirting recession as fallout from global trade disputes and Brexit put the brakes on a decade of expansion amid signs that exports will stay subdued for the time being.

GDP in Europe’s biggest economy was unchanged for the quarter, the Federal Statistics Office said on Thursday. That is below the 0.1% growth forecast in a Reuters poll and the 0.2% expansion achieved by the eurozone as a whole.

“Germany got away with a black eye,” DekaBank economist Andreas Scheuerle said.

Many of the country’s traditionally export-focused large companies have been hit hard by a cooling global economy and trade disputes triggered by US President Donald Trump.

They also face taking a hit if Britain’s exit from the EU in March is a disorderly one.

Steel-to-elevators group Thyssenkrupp warned on Tuesday of a darkening economic backdrop, signalling tough times for its capital goods business as it works through a major restructuring and major car markets go into reverse.

The economy ministry said indicators suggested that exports would be subdued in the next months but that a construction boom was likely to continue and private consumption would remain strong.

GDP IN EUROPE’S BIGGEST ECONOMY WAS UNCHANGED FOR THE QUARTER, BELOW EXPANSION ACHIEVED BY THE EUROZONE

“Solid domestic drivers and fiscal stimulus are providing some support at the beginning of the year,” the ministry said.

With the German economy having shrunk 0.2% in the third quarter a second consecutive quarter of contraction would have met the definition of a recession. It escaped that by a hairsbreadth, but grew just 1.5% in 2018, its weakest annual rate in five years. Growth is forecast to shrink to 1% in 2019, and the country faces a budget shortfall of about €25bn by 2023.

Thursday’s data left the euro struggling near a three-month low. Fallout from the trade disputes and Brexit are weighing on business confidence, which fell for the fifth consecutive month in January.

“A hard Brexit doesn’t help anyone,” Achim Wambach, president of the ZEW economic institute, said. “I think the negotiating parties see it that way too and will come to a solution.”

Forecasts of about 1% growth in 2019 are “realistic”.