German Firms Cut Investment for Third Quarter
German Firms Cut Investment for Third Quarter
(Bloomberg) --
German companies cut spending for a third quarter at the end of last year, leaving the economy struggling and vulnerable even before the coronavirus outbreak created a fresh threat for global growth.
The result means Europe’s largest economy entered 2020 ill-prepared for the epidemic that’s now wreaking havoc with supply chains already strained by trade tensions. Worse still, the deadly virus, which originated in China, is hitting closer to home; Italy has locked down an area near Milan and reported at least six deaths.
Business investment fell, with spending on machinery down the most in 3 1/2 year. Exports declined and household consumption stagnated, with a build-up in inventories helping cushion the blow. As a result the economy flatlined, a disappointing end to the country’s worst full-year performance since 2013.
The Bundesbank has warned that German exporters are likely to suffer from the coronavirus outbreak, saying there are no signs that growth momentum will pick up in the first quarter.
| GDP Components (QoQ) | Q4 | Q3 |
|---|---|---|
| Private Consumption | 0.0% | 0.5% |
| Government Spending | 0.3% | 1.3% |
| Capital Investment | -0.2% | -0.1% |
| Construction | 0.6% | 0.4% |
| Equipment Investment | -2.0% | -1.4% |
| Exports | -0.2% | 1.0% |
| Imports | 1.3% | -0.4% |
A measure of business confidence unexpectedly rose in February, suggesting companies are just expecting a short-term impact from the epidemic. However, the Ifo survey result doesn’t capture the latest escalation in Europe, which sent global stock markets tumbling on Monday.
Companies are divided on the potential impact of the epidemic. Puma SE said last week the virus won’t affect its business in the long term and forecasts a 10% gain in revenue this year. It rival sportswear maker Adidas AG has been less sanguine, pointing to a collapse in Chinese business since the outbreak.
The latest risk has kept alive calls for countries with budget surpluses to spend more to support their economies. Germany is usually high on that list, though it’s so far resisted appeals for a bigger fiscal package.
Ifo Institute President Clemens Fuest said Monday German growth could pick up to 0.2% this quarter. European Central Bank Chief Economist Philip Lane expects growth in the euro-area economy to stage a V-shape recovery once the epidemic is contained. The ECB will hold its next policy meeting and publish new forecasts on March 12.
--With assistance from Kristian Siedenburg and Harumi Ichikura.
To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien, Jana Randow
©2020 Bloomberg L.P.