German Economy Stagnated at End 2018, Just Dodging Recession - EcoFinBiz Blog

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German Economy Stagnated at End 2018, Just Dodging Recession

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(Bloomberg) -- Germany’s economy ground to a standstill at the end of 2018, just barely avoiding a recession, and prospects are waning that Europe will see a boost from its powerhouse anytime soon.

The fourth-quarter stagnation means the country trailed most of its peers in the euro area, where average growth was 0.2 percent. 2019 hasn’t brought much relief so far: disappointing numbers keep rolling in and a slew of institutions are downgrading their outlooks.

Just last week the European Commission issued sweeping downward revisions for Germany and many of the euro area’s major economies. The region faces a daunting combination of weaker demand for its exports from China and the rest of the world, the prospect of a messy divorce with the U.K., and protracted impact from political unrest in Italy and France.

Germany’s economy was bolstered by domestic demand in the fourth quarter. Investment, particularly into buildings but also equipment, rose markedly. Government spending also increased significantly from the previous three months, while private consumption was up slightly. With exports and imports rising at roughly the same pace, there was no contribution from net trade.

What Our Economists Say...
“Bloomberg Economics expects that some of the domestic factors dragging on growth will fade, and it sees a pickup to 0.3 percent this quarter and 0.4 percent in the next.”

--Jamie Murray and Maeva Cousin, Bloomberg Economics. Read more here

According to economists at Bank of America Merrill Lynch, the current slowdown may prove temporary but relies “on accidents not happening.” U.S. threats to hike car import tariffs would need to dissipate, the U.K. would have to leave the European Union with a deal, and the Chinese economy would need to stabilize, they say.

Yet business concerns this time are more entrenched than they were during the last growth scare, and that alone could weigh on investments and hamper the economy. A gauge for manufacturing is signaling contraction, the Economy Ministry predicts the weak phase in industry to continue and Daimler AG is preparing a “comprehensive” cost-cutting program.

At the European Central Bank, policy makers have signaled they won’t rush in with additional stimulus. Officials decided to halt bond buying in December and are waiting to see how to economy evolves before deciding to raise interest rates.

The domestic euro-area economy remains “pretty strong,” according to Irish central-bank governor Philip Lane, who is set to replace Peter Praet as ECB chief economist in June. GDP figures for the euro area are due to be released at 11 a.m. Frankfurt time and will likely confirm growth of 0.2 percent in the fourth quarter.

--With assistance from Kristian Siedenburg, Harumi Ichikura and Catarina Saraiva.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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