Published: Sat, November 16, 2019
Markets | By Otis Pena

Germany: Economy Avoids Recession With Slight Growth in Third Quarter

Germany: Economy Avoids Recession With Slight Growth in Third Quarter

Faltering exports and industrial production had pointed towards a significant chance of a recession, yet the strength of consumer spending ultimately managed to keep the German economy afloat for now. In two consecutive quarters of economic contraction there is a technical recession. Whereas analysts assumed that there would be a contraction for the second quarter in a row, the economy managed to show anemic growth of 0.1 percent.

Although German exports rose, imports "remained roughly at the level" of the previous quarter when the economy shrank by 0.2 percent, Destatis found.

Andrew Kenningham, chief Europe economist at Capital Economics said Germany isn't in the clear just yet.

Among other things, the dispute between U.S. President Donald Trump and the Chinese leadership over China's trade surplus with the U.S. has dampened trade and industrial output by raising uncertainty about whether and where more tariffs might be imposed.

The automobile sector, an important driver of overall growth, is also having trouble adjusting to stricter regulation following an emission cheating scandal and managing a broader shift away from combustion engines toward electric cars. "Germany's flagship industry, the automobile sector, is not running smoothly anymore", he said.

The government has said that's not needed and it's likely to feel vindicated by Thursday's figures.

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"The German economy seems to have come through the summer better than expected", said Claus Michelsen, head of the forecasting and economic department at the German Institute for Economic Research (DIW).

On one hand, the manufacturing sector is struggling amid the global and structural challenges, while on the other, private consumption remains solid with low inflation, low interest rates and a strong labor market.

"The main question, however, is how long the happy-go-lucky world can resist the negative impact from the depressive world", he said.

Germany's GDP expanded by 0.1% in the third quarter, beating expectations for a 0.1% decline.

German authorities will today release preliminary economic growth estimates for the three months to September. The GCEE forecasted real GDP growth of 0.5 percent for the current year in Germany and 0.9 percent for 2020. "On the contrary, concern should be more focused on the sinking prospects for Germany's long-term growth".

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