German Economy Marks Weakest Growth since 2013

Trade tensions appeared to have hit Germany, as Europe’s largest economy marks its slowest growth in five years.

Preliminary data released by the Federal Statistics Office on Tuesday showed that the German economy expanded 1.5 percent in 2018, the weakest rate since 2013 and notably slower than the previous year.

The country’s economy had been expected to grow by 1.8 percent at the start of last year. Back in 2017, growth was at 2.2 percent.

The German economy had contracted by 0.2 percent in the third quarter of the year, citing global trade conflict as cause of the slowdown.

The statistics office said Germany’s economy thus grew the ninth year in a row, although growth has lost momentum, adding that growth was mainly driven by domestic demand with household consumption and state spending rising on the year.

Trade Tensions, Brexit Uncertainty Hits German Economy

The waning global economy and tariffs disputes prompted by US President Donald Trump’s America First policies have put German companies under intense pressure. The risk that the UK will leave the European Union (EU) without a firm deal in March is another uncertainty.

The overall impact of Brexit on German economic growth is impossible to quantify, according to an official of the statistics office.

British policymakers seemed prepared to turn down the withdrawal arrangement discussed with the EU by Prime Minister Theresa May in a vote later in the day, leaving unclear what kind of Brexit on March 29 will take place or will one even occur at all.

Export growth also decelerated to 2.4 percent, which was almost half of the 4.6 percent growth registered in 2017, although a 4.5 percent climb in company investments in machinery and equipment in the previous year helped offset the slowdown.

As imports rose at a quicker pace than exports, net trade had a slightly negative impact on overall growth, according to office.

Germany’s export orientation leaves it exposed to the tensions in global trade pouring out from the US – the new tariffs on steel and aluminum as well as the spat with China.  

Still, Marcel Fratzscher, head of a German economic research institute, signaled a strong domestic activity and the record state budget surplus of nearly €60 billion ($68.61 billion), which are both expected to prop up growth this year as well.

The strong labor market with rising employment and healthy wage hikes will help to maintain private consumption as the main pillar of economic growth, Fratzscher stated.

Fratzscher added that the trade disputes and the uncertainty surrounding a recession in the US in the coming two years are probably the biggest risks for the economy.

The office said German exports to China were up nearly 10 percent year-on-year from January to November, while exports to the UK declined 3.6 percent in the same period.

The statistics office has disclosed fourth-quarter data yet, as it does not have enough details to provide a precise analysis.

Initial estimates by independent economists, however, suggest the Germany economy could have expanded around 0.2 percent in the last three months of the year.

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