German economy brakes in Q3 on weak foreign trade

The German economy contracted for the first time since 2015 in the third quarter as global trade disputes swung the traditional export growth engine of Europe’s largest economy into reverse.

Gross domestic product (GDP) in Europe’s biggest economy contracted by 0.2 per cent quarter-on-quarter, the Federal Statistics Office said on Wednesday. That compared with a Reuters forecast for a contraction of 0.1 per cent.

Germany’s economy slammed hard on the brakes in the third quarter, as car makers struggled to adjust to a new emissions-testing protocol and tussles over trade rules undermined exports.

Concerns are growing in the German economy, which is in its ninth year of expansion, about the impact of global trade disputes and Britain’s departure from the European Union.

To be sure, Germany’s economy won’t fall of the cliff. Economists said that the weak result was largely caused by temporary factors, notably bottlenecks in the approval of passenger cars in the wake of the new WLTP emissions-testing protocol. Exceptionally low water levels at the Rhine river–a major transportation route for oil and other goods– depressed activity even further.

“In the fourth quarter, the German economy will grow again simply because car manufacturers are likely to gradually ramp up their production again,” said Commerzbank economist Ralph Solveen.

Nevertheless, Germany’s export-dependent economy has lost momentum compared with last year, when it registered 2.2% growth, as an intensifying trade spat between Washington and Beijing has dampened foreign demand.

“The headwinds in global trade have become rougher,” said Stefan Schneider, an economist at Deutsche Bank. That is a concern, because “in Germany, weak exports tend to hit investments with a relatively short time lag,” he said.

Germany’s statistics body said the decline in Germany’s gross domestic product in the third quarter was largely caused by developments in foreign trade, as exports dropped and imports rose from the second quarter.

Limiting future growth, export expectations in the manufacturing sector hit their lowest in almost two years in October, according to a survey of about 2,300 manufacturers by the Ifo Institute, a supply-side economics think tank.

The government’s council of economic experts now expects growth of just 1.6% this year compared with 2.3% projected previously. For 2019, they predict growth of 1.5%.

“Germany doesn’t have an economic problem but rather an auto sector problem. Due to the sluggish certification of cars, car production had to be noticeably reduced, with collateral damage for other sectors too,” said Andreas Scheuerle at DekaBank.

However, the ZEW research institute said on Tuesday that investors do not expect the German economy to recover rapidly from a weak patch in the third quarter.