Germany: Economy stagnates in Q4 2018 as net exports drag on the economy
A detailed breakdown of national accounts data for the final quarter of last year confirmed the preliminary findings that Europe’s biggest economy escaped a technical recession by the skin of its teeth. On a price-, seasonally- and calendar-adjusted basis, the German economy grew 0.0% in Q4 over the previous quarter. While this is an improvement from the 0.2% quarter-on-quarter contraction in the third quarter, previously released full-year GDP data had suggested a small expansion in the final stages of last year. Compared to the same quarter a year prior, the economy grew 0.9% in price-adjusted terms, which was a slight deceleration from the third quarter’s 1.1% increase.
Turning to growth in the fourth quarter of last year, data showed that the economy was buttressed by domestic demand, while the external sector dragged on the economy. Domestic demand benefited mostly from a rebound in government consumption—which grew 1.6% over the previous quarter in Q4, contrasting the 0.3% contraction in Q3—and an acceleration in fixed investment growth to 0.9% from 0.3%. Fixed investment was supported by both construction, and machinery and equipment investments. Meanwhile, private consumption swung from a 0.3% drop in the third quarter to a 0.2% expansion in Q4. This was thanks to another drop in the unemployment rate, a rise in wages, still-elevated consumer confidence and easing inflationary pressures. With new car registrations contracting again in the quarter, private consumption of durable goods likely fell and households’ expenditure on non-durables and semi-durables should have picked up the slack.
On the external front, exports and imports of goods and services expanded at the same pace with both increasing 0.7% in the fourth quarter over the previous quarter. Consequently, net exports were a bigger drag on the economy in Q4, subtracting 1.1 percentage points from growth compared to the third quarter when net exports subtracted 0.9 percentage points from growth.
The drop in new exports and new car registrations is linked to weakness in the automotive sector, as reflected by the manufacturing sector subtracting 1.4 percentage points from economic growth by industry. This is a marked deterioration from the 0.4 percentage point subtraction in the third quarter. Carsten Brzeski, chief Germany economist at ING, noted that “cars are still blocking the road to a rebound”. Elaborating further on this point, Brzeski explained that, in the second and third quarters, the inventory build-up was a “reflection of strong production activity in the automotive sector for … parking lots as many produced cars could not be delivered due to missed deadlines on new emission standards”. Turning to the fourth quarter, Brzeski pointed out that the fact that inventory reductions subtracted from growth suggested “that many German cars were finally delivered to clients”. However, he emphasized that not all is doom and gloom for the German economy, given that “the temporary problems in the car industry mask solid fundamentals across the entire economy”.