Germany narrowly avoids recession

GDP figures released this morning show Germany has narrowly avoided slipping into recession.

The Federal Statistical Office announced this morning that the economy had grown by 0.1% in the third quarter of 2019.

A recession is often defined as two consecutive quarters of declining economic activity.

The unexpected results were largely down to a rise in private and state consumer spending as well as a small rise in exports after a period of slowdown.

Around 50% of Germany’s GDP is export-based, making it one of the most export-reliant economies in the world and leaving it especially susceptible to global economic fluctuations.

A number of economists had expected a technical recession as the effects US-China trade war took their toll. China is a major purchaser of German-manufactured cars, it’s trade is widely seen as essential to the German automobile industry – more than 77% of cars produced in the country exported.

The results mean that Berlin, and indeed the wider Eurozone, avoid the dread label of recession, but it major economic challenges to Germany remain.

Josie Dent, a Senior Economist at The Centre for Economist and Business Research told Good Morning Europe that businesses and policymakers across Europe would be breathing a sigh of relief.

Manufacturing challenges

For such a big economy, those figures are very large.

They reflect the strength of the country’s manufacturing industry. Manufactured goods are more extensively traded than services.

The figures mean Germany has been very vulnerable to adverse winds in global commerce. But due to Germany’s position it also means the entire Eurozone is threatened.

The conflict between the US and China has affected the Chinese economy which is an important buyer of German vehicles and industrial equipment.

China’s economic slowdown and trade tensions between the world’s top two economies have dampened German businesses’ spirits. Many German firms operating in China report a “gloomy” business outlook.

Nearly a quarter of German companies operating in China are planning to relocate all or part of their business out of the Asian country, according to a study released Tuesday by the German Chamber of Commerce in China.

The annual survey of 526 member firms in China found that 23% of them have either already decided to withdraw production capacity from the country or are considering it. A third of those companies have planned to leave China entirely.

The rest say they will transfer part of their business and production overseas, largely to lower-cost countries in Asia.

Operating costs in China have been rising as the country seeks to rebalance its economy from an export and investment-led model to one driven by services and consumer spending.

Of the 104 companies that have decided to leave or are considering doing so, 71% cite the rise in production costs — particularly for labor.

And more recently US tariffs in retaliation over the illegal EU subsidies to the European aircraft maker Airbus have targeted the four individual countries responsible for most of the financial support – Germany, along with the UK, France and Spain.

Car industry struggling. It is not all down to trade.

Germany’s motor industry has had a hard time with emissions issues. German car manufacturers Volkswagen, Daimler and BMW have been charged by the European Commission with colluding to block the rollout of clean emissions technology.

And now there are further issues with the need to adapt to new European Union rules on greenhouse gas emissions and the related challenge of making the transition to electric powered vehicles, which requires massive investment.

There is also a widely held view in Germany that the country needs a major investment programme to improve its infrastructure, in areas such as rail, bridges and broadband.

All that said it bears emphasising that Germany has one of the lowest unemployment rates on the planet at 3.1%. It has also seen the number of people with jobs continue to grow this year, although more slowly than in the recent past.