Consumption, Exports Help Lift German Economy Back to Growth

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Consumption and exports helped the German economy stay above water in the third quarter, when it unexpectedly eked out a modest expansion to avoid a recession.

Growth in government and household expenditure accelerated, while exports rebounded after a steep decline, according to figures published Friday. That was enough to offset the biggest drop in machinery and equipment investment in more than six years and help the economy register 0.1% growth.

Consumer spending was helped by strong gains in wages, which far outpaced inflation, compounding the positive confidence effect from low unemployment. While uncertainty from global trade tensions has made companies reluctant to spend, the big investment drop in the third quarter reflected one-off effects from government spending. Overall government outlays were a positive for the quarter, with growth picking up to 0.8% from 0.6%.

That may not silence those pushing Germany to pump in fiscal stimulus, but it does back Finance Minister Olaf Scholz’s argument that the administration is stepping up its contributions. He has said Germany is not in an economic crisis, despite a manufacturing slump, and there is no immediate need for a broad support package.

Click here for a full details of third-quarter German GDP

Inventories were also a drag on GDP in the quarter, while net trade was a positive. After a 0.2% contraction in the second quarter, Europe’s largest economy is barely growing and on track for a full-year expansion of just 0.5%. That would be less than half the euro-area average and mark the worst reading since 2013.

However, there have been some positive signs recently, with German business sentiment stabilizing after months of declines. Purchasing Managers’ Indexes due on Friday are forecast to show another modest improvement in measures for both manufacturing and services.

More broadly, global investor optimism has picked up and the risk of a recession has been fading. Much depends on the unfolding of U.S.-China trade talks, where progress appears to change on an almost daily basis.

--With assistance from Harumi Ichikura and Kristian Siedenburg.

To contact the reporter on this story: Fergal O'Brien in Zurich at fobrien@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Jana Randow

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