German economy languishing, narrowly averted a recession in third quarter

Daniel Fowler
November 16, 2019

BERLIN-Germany's gross domestic product returned to modest growth in the third quarter, the Federal Statistical Office reported on Thursday, staving off a widely feared recession in Europe's largest economy.

Defying forecasts of a second quarterly contraction in a row in July-September, growth of 0.1 percent was "a hefty, but happy surprise", analyst Jens-Oliver Niklasch of LBBW bank commented. This means that Europe´s largest economy narrowly avoided another contraction.

The economy is "suffering from enormous global political uncertainty" and its flagship industry, the automobile sector, is not running smoothly anymore, Scheuerle said.

A number of economists had expected a technical recession as the effects US-China trade war took their toll.

The economy minister of Germany stated that though the country officially not entered the recession, the economic development in the country remains a major concern for the government.

The vehicle industry, an important contributor to overall growth, is also struggling to adjust to stricter regulation following the emission cheating scandal and with managing the move away from combustion engines toward electric cars.

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The French package worth 10 billion euros is made up mainly of tax breaks for low-income workers and pensioners this year, followed by a 5 billion euro cut in income tax next year. Rabobank concluded this in a report that was published last week.

Chancellor Angela Merkel's government has since 2014 stuck rigidly to a balanced-budget dogma known as "black zero", even stricter than a "debt brake" rule written into the constitution in 2009.

She said "countries with chronic budget surpluses like the Netherlands and Germany" need to increase spending to redress "imbalances" in the eurozone, echoing calls from national leaders like French president Emmanuel Macron.

But unlike during the recession of 2008-09, "this time around the German economy is not structurally sound and healthy".

Although German exports rose, imports "remained roughly at the level" of the previous quarter when the economy shrank by 0.2 percent, Destatis found. This growth rate in quarter 3 is relatively good in comparison to quarter 2. 'The economic slowdown in China, the global trade dispute and the Brexit chaos are all pointing to a weaker economic momentum, ' Krueger said.

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