German Economy Rebounds From Stagnation With 0.4% Expansion

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Germany’s economy emerged from stagnation at the beginning of 2019, returning to growth despite a slump in manufacturing that could worsen because of escalating global trade tensions.

The 0.4% expansion signals some strength across the euro area in the first quarter amid a better-than-expected performance in a number of countries. But industry is under pressure and the region is at risk of being sucked into an increasingly tense U.S.-China trade conflict.

German Economy Rebounds From Stagnation With 0.4% Expansion

Global worries were heightened on Wednesday, with reports showing the Chinese economy continues to cool despite efforts by the government and the central bank. Figures pointed to slower growth in industrial output, retail sales and investment at the start of this quarter.

Germany’s first-quarter pickup matched the median forecast of economists. The statistics office said there was a boost from consumer spending, construction and equipment investment, while there were “mixed signals” on trade. In the euro area, growth was also 0.4% in the period, twice the pace of the previous three months.

What Bloomberg’s Economists Say

“Germany’s economy performed strongly in first quarter, withstanding a slowdown in external demand and weakness in its manufacturing sector. And we expect the headwinds to weaken by year-end. The euro area’s largest economy is unlikely to give the European Central Bank any justification for additional monetary stimulus.”

--David Powell, euro-area economist
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Bloomberg Economics also notes that the lift from construction spending may be temporary and economic growth could “decelerate slightly” this quarter. UniCredit economists share that view and say it’s “not out of the woods yet.” German bonds rose, pushing 10-year yields close to minus 0.1%, the lowest since 2016.

Europe’s largest economy barely skirted a recession last year after it took a hit from factors including disruption to auto production. While some of those issues have faded, more pronounced protectionist measures could damp business sentiment in the export-heavy nation. Thyssenkrupp on Tuesday noted a ”weakening macro environment” as it reported a drop in profit.

Growth in Germany is forecast to slow to 0.5% this year from 1.4% in 2018, according to the government. Euro-area expansion is predicted by economists to ease to 1.2% from 1.9%.

The slowdown, along with weak inflation, has prompted the ECB to delay interest-rate increases. But solid domestic demand is giving hope to some officials about the second half of the year. They hold their next policy meeting on June 6, when their updated projections for the economy will determine how favorable they want to make a new round of loans they’re offering banks.

In addition to Germany, first quarter growth in the euro zone got a lift from a surge in Spain, resilience in France and a rebound in Italy. Employment in the region rose 0.3 percent, according to a separate release.

CountryFirst-quarter GDPPrevious quarter
Euro area0.4%0.2%
Germany0.4%0.0%
France0.3%0.3%
Italy0.2%-0.1%
Spain0.7%0.6%
Netherlands0.5%0.5%

©2019 Bloomberg L.P.