Germany: The economy flatlines in Q4 2019, ending a disappointing year on a sour note
The German economy flatlined at the end of last year in quarter-on-quarter terms, down from a slightly revised 0.2% expansion in the third quarter (previously reported: +0.1% quarter-on-quarter). Compared to the same quarter a year prior, economic growth slowed markedly from an upwardly revised 1.1% in the third quarter (previously reported: +1.0% year-on-year) to 0.3% in the fourth.
While detailed quarterly data is set to be released on 25 February, public and private consumption lost steam. A notably stronger drop in retail sales in the quarter compared to the third quarter highlights weakened household consumption. Fixed investment, meanwhile, showed a diverging trend: Machinery and equipment expenditure dropped markedly, although investment in the construction sector grew. On the external front, net exports likely weighed on the economy as exports are expected to have contracted while imports should have risen.
Looking ahead, the German economy is expected to rebound marginally this year on resilient domestic demand and an improving external sector. However, the balance of risks is tilted to the downside and largely hinges on developments in the external sector, especially in relation to progress on the Sino-American trade dispute front, Brexit, the coronavirus outbreak and a possible intensification of tensions between the single-currency bloc and the United States. In addition, recent political turmoil at home—Chancellor Angela Merkel’s heir-apparent, Annegret Kramp-Karrenbauer, resigned as CDU chief—highlights the increasing difficulty of governing without the consent of the far-right or far-left, and thus the heightened risk of snap elections.
Carsten Brzeski, chief Germany economist at ING Germany, stated that “discussions on the German economy will again be dominated by one single letter: the ‘r’”, alluding to the risk of Germany falling into recession, and stressed that an “end to this stagnation is still not yet in sight”.