Germany’s economic growth slows to its lowest rate level in six years

German economic growth slowed last year to its lowest rate in six years as global trade tensions, export weakness and a persistent downturn in the automotive industry took their toll on Europe’s largest economy.

The gross domestic product growth rate of 0.6 per cent, released on Wednesday by Germany’s statistics office, is the lowest since 2013’s 0.4 per cent expansion. The figure will heighten anxiety that a decade of export-driven expansion is giving way to a period of economic weakness, as tensions between the US and China, uncertainty over the impact of Brexit and structural shifts in key industries hit traditional German strengths.

The German economy grew by 0.6 per cent in 2019, the weakest expansion rate since 2013 and a marked cooling from the previous year, as exporters in Europe’s largest economy faced increased headwinds from trade disputes.

This is the weakest expansion rate since 2013 and a marked cooling from the previous year, a preliminary estimate from the Federal Statistics Office showed on Wednesday.

Economists polled by Reuters had expected growth in gross domestic product (GDP) of 0.6 per cent last year after an expansion rate of 1.5 per cent in 2018.

The preliminary estimate, released on Wednesday by the Federal Statistics Office, was in line with a Reuters poll of analysts and followed growth in gross domestic product (GDP) of 1.5 per cent in 2018.

“This means that the German economy grew the tenth year in a row. This is the longest growth period since German reunification,” statistics official Albert Braakmann said, adding that stronger private consumption, higher state spending and booming construction supported growth in 2019.

Deka Bank analyst Andreas Scheuerle said the German economy had ended an unusually weak year marked by “bad luck and misery”, pointing to tariff disputes and Brexit uncertainty.

“Without the domestic demand − this means private consumption, state spending and construction − the German economy would have entered a recession,” Scheuerle added.

The office said the budget surplus of the public sector, including federal states, municipalities and social security systems, fell to 49.8 billion euros ($55.4 billion) or 1.5 per cent of GDP after 62.4 billion euros or 1.9 per cent in the previous year.

Exports edged up by 0.9 per cent last year after a 2.1 per cent increase in 2018 while imports rose by 1.9 per cent following a 3.6 per cent jump, the office added. This suggests that net trade had a negative impact on overall economic growth last year.

Germany’s export-dependent manufacturers are contending with sluggish foreign demand in light of a slowing world economy and uncertainty linked to tariff disputes and Britain’s decision to leave the European Union.

The automobile sector is also struggling to adjust to stricter emissions regulation and a shift to electric vehicles.

Production in manufacturing, which makes up roughly a quarter of overall economic output, fell by 3.6 per cent, the data showed. “This decrease was mainly caused by weak production in the automobile industry,” the statistics office said.

Year-on-year from January to November, output in the car industry fell by 11.4 per cent, statistics official Stefan Hauf added.

Meanwhile the yields on Germany’s two-year government bond hit a nine-month high ahead of the signing of the China-US Phase 1 trade deal, the first staging post in ending a dispute that threatened to hammer global growth and boosted demand for safe assets bonds.

Investors shifted their attention from the possibility of an imminent war in the Middle East after the United States imposed new sanctions on Iranian officials and businesses.

Traders re-focused on a warming of trade relations between the United States and China, the world’s two biggest economies, with the accord due to be signed at the White House on Wednesday.

The Phase 1 trade deal “stops the bleeding” but does not end the trade war, a senior US Chamber of Commerce official said on Monday, warning that significant challenges would remain.

The United States and China have also agreed to restart semi-annual talks aimed at resolving economic disputes between them, a process abandoned at the start of President Donald Trump’s administration as a trade conflict between the countries escalated.

“Political cheering is likely surrounding the signing of the US-China Phase 1 deal and data is unlikely to disrupt the picture for now,” said Antoine Bouvet, senior rates strategist at ING.

Reuters