German economy narrowly evades recession
A technical recession may have been avoided, but the German economy faces issues at home and abroad, and fiscal stimulus is unlikely
Germany defied predictions it was sliding into recession after consumer and state spending provided the growth it needed to record 0.1% quarterly expansion.
While the growth means a technical recession has been avoided, and the German construction sector rallied after two years of contraction, Europe's largest economy remains mired in a manufacturing slump.
Germany relies on exports much more than most Western economies, and as such has been hit particularly hard by the tariff hikes resulting from the US-China trade war, as well as uncertainty surrounding Brexit, and disruption in the car industry - a significant part of the country's economy - by electric vehicles and new emissions standards.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
The struggles of its car industry can be encapsulated in the recent news that Daimler, the parent company of Mercedes, has announced a €1.3bn retrenchment and a sacking of 1,100 managers globally, for which the company has specifically blamed their slow pace transitioning to electric vehicles.
Germany is “suffering from enormous global political uncertainty” and its flagship industry, the automobile sector, is also struggling, said Deka bank analyst Andreas Scheuerle. Nevertheless, “The German economy got away with a black eye: the technical recession could be avoided,” he said.
Olaf Scholz, the hawkish German finance minister, is at the forefront of his government’s attempts to resist calls for increased fiscal stimulus. He will have been cheered by the news. “Looking at the German economy, which is really resilient and globally active, you have to understand there’s slower growth in the world. This has an impact on the economy in Germany. That’s obvious,” he said at an event in Berlin. “We are cautiously optimistic. It’s slower growth, but it’s not a crisis.”
The news that a recession has been avoided will enable Germany’s coalition government to maintain its strict “black zero” policy that refuses to run any kind of deficit in government spending.
“Germany is in effect doubling down on its mercantilist trade model and rebuffing pleas from the International Monetary Fund and the European Central Fund for fiscal loosening,” writes Ambrose Evans-Pritchard in The Telegraph. The pleas are “a polite way of saying that Germany should stop surfing off other's countries' demand.”
–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––
Germany's exports may be suffering, but its internal economy remains sanguine and labour market strong, with a record 45.4 million people employed - an increase of 0.8% from a year earlier.
“The downside risks — including trade tensions and the possibility of a hard Brexit — remain considerable,” said Shekhar Aiyar, the IMF's mission chief for Germany. However, “domestic demand remains resilient, supported by strong labour market conditions and generally healthy private and public sector balance sheets.”
However, reports The Financial Times, “economists worry that the downturn in German manufacturing could spill over into domestic-focused services and start to weaken the labour market, which has recently showed signs of cooling.”
Katharina Utermöhl, senior economist at Allianz, is one of those economists: “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.”
Create an account with the same email registered to your subscription to unlock access.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
William Gritten is a London-born, New York-based strategist and writer focusing on politics and international affairs.
-
'Make legal immigration a more plausible option'
Instant Opinion Opinion, comment and editorials of the day
By Harold Maass, The Week US Published
-
LA-to-Las Vegas high-speed rail line breaks ground
Speed Read The railway will be ready as soon as 2028
By Peter Weber, The Week US Published
-
Israel's military intelligence chief resigns
Speed Read Maj. Gen. Aharon Haliva is the first leader to quit for failing to prevent the Hamas attack in October
By Justin Klawans, The Week US Published
-
Germany's transportation industry grinds to a halt as workers strike
The Explainer The country's railways and airports are both at a standstill as union members walk off the job
By Justin Klawans, The Week US Published
-
Germany launches the world's first hydrogen-powered trains
Speed Read
By Anahi Valenzuela Published
-
Germany takes over Russia's Gazprom subsidiary after apparent attempt to transfer assets to a Moscow DJ
Speed Read
By Peter Weber Published
-
What is Wirecard and why has the scandal-hit firm collapsed?
Speed Read Payment processing giant becomes first Dax-listed company to fail amid €1.9bn accounting scandal
By The Week Staff Last updated
-
German industry slows stoking fears of recession
In Depth Output from the German economy's industrial sector fell an unexpected 1.5% in June
By William Gritten Last updated
-
Germany narrowly avoids recession
Speed Read Eurozone’s largest economy avoids consecutive negative quarter growth, but the future looks uncertain
By The Week Staff Last updated
-
German state to take stakes in marquee domestic companies
Speed Read Shift in industrial strategy to prevent foreign takeovers ‘needed to safeguard the country’s prosperity’ says minister
By The Week Staff Last updated
-
Is Germany sliding into recession?
Speed Read A downturn in Europe’s largest economy would have huge repercussions for the eurozone and possibly Brexit
By The Week Staff Last updated