Germany’s Economy Shrinks as Exports Struggle

The country is feeling the effects of trade conflicts and global uncertainty.
Lauren MuskettAugust 15, 2019
Germany’s Economy Shrinks as Exports Struggle

The German economy shrank in the second quarter as manufacturers struggle with a global slowdown due to the U.S.-China trade war and Brexit fears.

The GDP for the three months ending in June shrunk 0.1% compared to the previous quarter, which analysts predicted. This is down from 0.4% growth in the first quarter of 2019.

Analysts report that Germany, the world’s fourth largest economy, and Europe’s biggest, has been hit by what analysts described as a “perfect storm” of negative factors.

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“Today’s GDP report definitely marks the end of a golden decade for the German economy,” said Carsten Brzeski, chief economist in Germany at the Dutch bank ING.

“Increased uncertainty, rather than direct effects from the trade conflicts have dented sentiment and hence economic activity,” Brzeski added.

Economy Minister Peter Altmaier said the new data was a wake-up call.

“We are in a phase of economic weakness but not yet in recession. We can avoid that if we take the right measures,” said Altmaier.

The recently escalating U.S.-China trade war is impacting the country since it heavily relies on exporters that sell large amounts of goods to China and the U.S.

A key issue is the global decline in the demand for cars, especially in China where new auto sales have plunged 13 months in a row. This has been a big hit for German carmakers BMW, Volkswagen, and Daimler, which depend on the world’s largest market for vehicles.

The timing is particularly damaging because Germany’s automakers have made substantial investments to build cleaner cars, according to Oliver Rakau, chief German economist at Oxford Economics, as reported by CNN Business.

Following the global financial crisis, the German economy helped support growth in Europe, but the industrial output for June dropped more than 5% compared to the previous year. Also, the ZEW indicator of economic sentiment for August dropped sharply, hitting its lowest level since December 2011.

With Brexit in the mix, Germany’s economic outlook looks grim, but Rakau expects a return to “modest” growth in the current quarter helped by “resilient” domestic demand. He said that, “The main question really is how exports and industry are going to fare?”

If the U.S.-China trade war drags on, the German government could feel increased pressure to intervene in bolstering the country’s economy, namely from the European Central Bank (ECB) when it meets in September.

Alexander Koerner/Getty Images