The German economy has defied expectations of a recession by growing 0.1 per cent in the third quarter as higher spending by households and the government offset a downturn in its export-focused manufacturing sector.
Germany’s federal statistics office announced the figures on Thursday. It also revised down Germany’s second-quarter economic performance from minus 0.1 to minus 0.2 per cent, while revising up first-quarter growth figures from 0.4 to 0.5 per cent.
The mildly positive growth in the third quarter means the German economy has avoided a technical recession.
The German slowdown is having a knock-on effect across Central and eastern Europe; while growth in the region remains healthy, third-quarter figures published on Thursday came in below expectations for Poland, the Czech Republic, Slovakia and Romania.
“The relevant economic indicators are not yet indicative of a fundamental change in the economic situation, but there are first slight glimmers of hope,” the German economy ministry said in a statement. “The slowdown in employment activity since February continued in September.”
The slight expansion could ease the pressure on Chancellor Angela Merkel’s government to ditch its commitment to budget surpluses and to use more fiscal stimulus.
“After 10 years of almost unstoppable economic growth, a shorter period of stagnation is not necessarily a big crisis,” said Carsten Brzeski, economist for Germany at ING. “This also explains the resistance or at least hesitation of the German government to engage in significant short-term fiscal stimulus.”
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However Andrew Kenningham at Capital Economics said some recent business surveys indicated there was still a risk of another downturn.
“With policymakers unlikely to loosen fiscal policy significantly, we think a mild recession is more likely than not in the coming year,” he said.
German industrial production has been in decline for a year and a half. But the domestic economy is in rude health, with employment at a record high and ultra-low interest rates prompting consumers to spend more and pushing up property prices.
“The quarter-on-quarter comparison . . . shows that positive contributions in the third quarter of 2019 mainly came from consumption, according to provisional calculations,” Germany’s federal statistics office said.
It said exports rose while imports were flat between the second and third quarters. Investments increased in construction but declined in machinery and equipment production in the three months to September.
“Businesses probably ran down their inventories again, which shaved off a little from growth in GDP,” said Florian Hense, economist at Berenberg.
Year on year, the German economy grew by 0.5 per cent from the third quarter of last year, after adjusting for prices and calendar differences. Its labour market remained solid with a record 45.4m people in work, an increase of 0.8 per cent from a year earlier.
Column chart of Real GDP, quarter-on-quarter change (%) showing German growth returned to positive territory in the third quarter
Germany’s third-quarter performance was below the 0.2 per cent growth across the eurozone in the same period, when Spain grew by 0.4 per cent, France 0.3 per cent, and Italy managed 0.1 per cent growth.
The latest quarterly growth figures contrast with the 2 per cent annual growth Germany has enjoyed on average over the past five years and underlines how the powerhouse of the eurozone economy has stalled.
German industry has been hit by the US-China trade war, uncertainty over Brexit and disruption in the car industry caused by new emissions rules and the shift to electric vehicles. Car production was down 9 per cent in the first 10 months of the year.
Economists worry that the downturn in manufacturing could spill over into domestic-focused services and start to weaken the labour market, which has recently showed signs of cooling.
“A weakening of the German labour market will start to weigh on the mood of the consumer, who is the main pillar of the German economy right now, and we believe that next year this pillar will increasingly start to shake,” said Katharina Utermöhl, senior economist at Allianz.
There have been some signs that Europe’s biggest economy is stabilising after more upbeat figures were published recently. German exports increased by 1.5 per cent in September and new manufacturing orders were up 1.3 per cent in the same month.
This week, the Zew survey of financial market experts found economic sentiment rebounded from an eight-year low of minus 44.1 in August to a better than expected minus 2.1 this month, reflecting hopes that the US and China are defusing their trade war and the UK is nearing a Brexit deal.
