Tuesday, 14 Jul 2020

Germany narrowly avoids recession but growth fragile

Germany has bucked expectations and narrowly avoided a widely-feared recession but growth remains weak, latest figures show.

Europe’s biggest economy unexpectedly expanded by 0.1% in the third quarter, driven by strong consumer spending.

Analysts had expected a 0.1% contraction.

But the Federal Statistical Office revised down the GDP figure the second quarter to a 0.2% contraction, greater than the 0.1% decline previously reported.

Earlier in the week, the UK also dodged a recession – defined by two successive periods of economic decline – despite seeing the biggest year-on-year slowdown in nearly a decade.

On the year, the German economy grew by 0.5% for the period from July to September, following a 0.3% expansion for April to June.

Household spending was higher than in the second quarter and the state also increased spending, the statistics office said, adding that construction also supported growth.

The country’s economy minister Peter Altmaier said: “We do not have a technical recession, but the growth numbers are still too weak.”

Last week, the German government’s independent panel of economic advisers reported that a 0.1% third-quarter contraction was likely.

Although they said there were no signs of a “broad, deep recession,” the group also said there was no sign of a “strong revival” in the fourth quarter.

The five-member panel cut its economic forecast to growth of 0.5% this year and 0.9% in 2020, compared with its forecast in March of 0.8% this year and 1.7% next year.

Despite ducking a recession, the numbers indicate Germany is in a de facto stagnation, and its export-driven economy still faces difficulties due to international uncertainty.

Services companies and the jobs market have held up well in Germany, but the industrial sector, including car manufacturing, has seen declines in the face of trade tensions.

The ongoing dispute between the US and China and the imposition of tariffs has fuelled the global economic slowdown, while Brexit uncertainty has added to Germany’s economic jitters.

In their report, the government economists cautioned a no-deal departure by the UK could cut 0.3 percentage points off next year’s German growth, reducing it to 0.6%.

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