Germany: Detailed breakdown confirms flatlining economy in Q4
A detailed breakdown of fourth-quarter national accounts data confirmed that the German economy flatlined over the prior quarter, contrasting the 0.2% expansion in the third quarter, on the back of notably weaker domestic demand and a drag from the external sector. Meanwhile, the price-adjusted annual rate of growth in the Euro area’s largest economy was confirmed at 0.3% in Q4, notably down from the prior quarter’s 1.1% expansion. As such, the economy grew at the weakest pace in six years in 2019 as a whole (2019: +0.6%; 2018: +1.5%).
Domestic demand weakened markedly as private consumption flatlined, contrasting the 0.5% quarterly expansion in Q3. This came despite robust wage growth in the quarter amid a still-tight labor market and muted inflationary pressures. Furthermore, government consumption grew tepidly at 0.3%, shifting down a few gears from the prior quarter’s 1.3% increase, while fixed investment contracted 0.2% in the quarter, down from the 0.1% drop in Q3. The fall in fixed investment came chiefly on the back of a considerable drop in machinery and equipment expenditure.
Turning to the external sector, foreign trade dragged on the economy as exports of goods and services fell 0.2% quarter-on-quarter, swinging from a 1.0% increase in the previous period, while imports rose 1.3% in the fourth quarter, contrasting the 0.4% contraction in the third.
Looking ahead, the German economy is expected to gain some steam this year on resilient domestic demand; however, growth will still be muted, and the balance of risks remains skewed to the downside amid lingering external headwinds due to the U.S.-China trade dispute, Brexit, the coronavirus outbreak and a possible intensification of tensions between the U.S. and the EU.
Commenting on the outlook, Carsten Brzeski, chief economist at ING Germany, noted that “in the absence of either a significant pick-up in global trade or additional fiscal stimulus, it is hard to see the German economy leaving the slow lane any time soon.”