Germany narrowly avoids recession despite trade war hit
The country narrowly avoids recession as it struggles with trade conflicts around the world. …
Germany has narrowly avoided a recession, according to new official data.
The country’s economy grew by 0.1% in the third quarter of the year after contracting in the previous three months.
A recession is often defined as two consecutive quarters of declining economic activity.
Germany’s strength as an exporter of manufactured goods has left it exposed to recent conflict in global trade.
The growth figure was the right side of zero but it is still very weak. Putting together the new figures and the previous quarter’s performance, the economy did shrink slightly over the six month period.
Trade is a central element in this story.
The value of total German exports – including services – is about 47% of the country’s whole economy, its gross domestic product or GDP.
There is a lot of imported content in those exports. So an alternative way of looking at it is the value added in Germany of the goods it sells abroad. That is about a third of GDP.
Manufacturing challenges
For such a big economy, those figures are very large.
They reflect the strength of the country’s manufacturing industry. Manufactured goods are more extensively traded than services.
The figures mean Germany has been very vulnerable to adverse winds in global commerce.
The tensions that have followed the more assertive approach of US President Donald Trump’s administration are a case in point.
Germany has been affected through several channels.
The conflict between the US and China has affected the Chinese economy which is an important buyer of German vehicles and industrial equipment.
There have been US tariffs on imports of steel and aluminium.
And more recently US tariffs in retaliation over subsidies to the European aircraft maker Airbus have targeted the four individual countries responsible for most of the financial support – Germany, along with the UK, France and Spain.
No surprise then that German economic growth has been slower this year.
The newest figures show that exports did increase in the third quarter of the 2019. But sales abroad have been hit and the risks to exporters remain significant.
Car industry struggling
It is not all down to trade.
Germany’s motor industry has had a hard time with emissions issues. Volkswagen was the central player in the scandal over emissions test cheating.
And now there are further issues with the need to adapt to new European Union rules on greenhouse gas emissions and the related challenge of making the transition to electric powered vehicles, which requires massive investment.
There is also a widely held view in Germany that the country needs a major investment programme to improve its infrastructure, in areas such as rail, bridges and broadband.
All that said it bears emphasising that Germany has one of the lowest unemployment rates on the planet at 3.1%. It has also seen the number of people with jobs continue to grow this year, although more slowly than in the recent past.
It is also the case that in terms of the recovery from the financial crisis Germany is a relatively strong performer.
Among the G7 group of leading developed economies, Germany comes out best compared with pre-crisis levels in terms of GDP per capita, a somewhat rough and ready indicator of average living standards.
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