German Economy Contracts In Q2
The German economy is the fourth largest in the world behind the US, Chinese and Japanese economies. Much of what Germany produces is exported around the world, making the German economy more susceptible than others to any drags on global growth, such as Mr Trump’s trade war or a general reduction in global demand.
Stresses in global trade have been blamed for a contraction in German economic output in Q2 2019. The Federal Statistics Office in Germany has reported that quarterly growth suffered a contraction, falling by 0.1% relative to Q1. Headwinds caused by the likely exit of the UK from the EU and the consequences of a chaotic exit for the remaining 27 members have also contributed to uncertainty in Germany, and, indeed, across the bloc.
The weakness of the German economy in Q2 was attributed to a decline in exports, due to weakening global demand generally. It is hard to determine to what extent the protectionist trade measures introduced by the USA are retarding global economic output and how much is due to softening demand independent of them. Incorporating the current data into an annual projection, Germn growth would come in at an anaemic 0.4%. The German economy is regarded as the powerhouse economy of the EU and any softening of its economic output is likely to factor into decisions on rate setting and further quantitative easing by the ECB.
Within the data, general investment figures (excluding construction) were up as was household and governmental spending. The construction sector enjoyed an unusually strong Q1 and fell back to earth in Q2.
Projections for the third quarter are not looking too rosy which leads to concerns that the economy may be heading for recession – defined as two consecutive quarters of economic contraction. There is little that Germany can do to stimulate global demand, persuade Mr Trump on the follies of protectionism or convince a right-wing Eurosceptic British government on the lasting economic harm of Brexit, of course.