Germany Dodges Recession With ‘Slight’ Growth in Fourth Quarter
German Economy Grows Least in Five Years Amid Industry Slump
(Bloomberg) -- Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine.
There was a “slight” increase in gross domestic product in the three months through December, according to the Federal Statistics Office, which will publish official figures next month. But the quarter rounded out a year in which overall growth was the weakest since 2013.
“We do not expect a minus in the fourth quarter, but see signs of a slight recovery,” said Tanja Mucha, who helps compile GDP figures at the statistics office. “We expect a small plus,” she added, cautioning that the estimate is preliminary and based on only about half the information for the quarter.
Germany is the first among the world’s biggest developed nations to publish 2018 data, and the world’s third-largest exporter is an indicator for the state of the global economy. Policy makers from around the world have become more cautious about future growth, pledging to react quickly if they see momentum souring.
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In Europe’s largest economy, reports from industrial output to company surveys hinted at a second quarterly contraction in the three months through December. Companies including robotics maker Kuka AG and car-part manufacturer Continental AG have cited weakness in China as a risk.
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Annual growth was driven by a 4.5 percent surge in equipment spending, the statistics office said. Private consumption rose 1 percent last year and public expenditure was up 1.1 percent. The government posted a budget surplus of 1.7 percent of GDP.
The euro was down 0.3 percent at 10:53 a.m. Frankfurt time, trading at $1.1432. The yield on German 2-year bonds declined to minus 0.606 percent.
Despite ending 2018 on a weak footing, investors have been bullish on German equities so far this year as negotiations between the U.S. and China over exports appeared to warm up, reducing the likelihood of a trade war. Orders for cars and motor vehicle parts have started to reverse a summer slump triggered by new emissions tests, and rising water levels on Germany’s longest river are contributing to a recovery in deliveries.
The government is also doing its part. After running significant budget surpluses for the last five years, Chancellor Angela Merkel’s coalition is planning to invest a record 151.6 billion euros ($174 billion) through 2022 in roads, railways and faster Internet. It will also ease the tax burden for households, a move that could spur consumer spending.
The labor market remains buoyant, with unemployment at its lowest level since German reunification almost three decades ago. Negotiated wages rose last year at the fastest pace since 2014, which should support domestic demand.
“The good news come from the domestic economy, where the labor market and wage developments are reasons for hope,” said Claus Michelsen, an economist at research institute DIW in Berlin. “All that should strongly boost consumption this year and cushion some of the weakness in exports.”
--With assistance from Kristian Siedenburg, Harumi Ichikura, Chris Reiter and Iain Rogers.
To contact the reporters on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net;Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow, Fergal O'Brien
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