The German economy just had its worst year since 2013

Germany may have dodged a recession but its economic performance in 2018 was still the weakest in five years...

Posted: Jan 15, 2019 1:38 PM
Updated: Jan 15, 2019 1:38 PM

Germany may have dodged a recession but its economic performance in 2018 was still the weakest in five years, adding to evidence that trade tensions and a sharp slowdown in China are hampering global growth.

The German economy grew 1.5% in 2018, according to preliminary government data published Tuesday. That's a sharp drop from the 2.2% expansion in 2017, and the slowest annual rate since the European debt crisis.

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The euro slumped nearly 0.4% to $1.14 after the GDP data was released.

Holger Schmieding, chief economist at Berenberg, said the German economy has been hit by "a series of shocks."

Trade tensions, turmoil in emerging markets, a temporary spike in oil prices, uncertainty over Brexit and a sharp economic slowdown in China all contributed to the weakness.

Some of the country's leading companies have suffered.

Carmakers such as Volkswagen (VLKAF) have been hurt by weaker sales in China, and they've struggled to certify some new models under new EU emissions tests. Volkswagen delivered a record 10.8 million cars around the world in 2018, but slumping sales in China at the end of the year limited annual growth in the key market to just 0.5%.

German growth was weakest in the second half of 2018, and especially the third quarter, when the economy contracted 0.2%.

Official data for the final three months of the year is not yet available, but German statistics officials said Tuesday that the economy likely returned to growth during the fourth quarter to dodge a recession.

Yet Schmieding said the malaise is likely to continue in 2019.

Berenberg expects the German economy to grow just 1.2% in 2019, matching the rest of the eurozone. Economists at Capital Economics forecast even weaker growth of just 1%.

"For the next few months, we have to brace ourselves for a very grey winter," said Schmieding.

Trouble in Europe's largest economy will deepen worries about slower global growth this year. Risks clouding the global outlook include the trade war and the impact of US interest rate hikes on emerging markets.

Analysts are also worried about China's economy, a major engine of growth in recent years that is now showing signs of a sharp slowdown.

Beijing on Tuesday announced 1.3 trillion yuan ($193 billion) worth of new measures designed to stimulate the economy, including tax cuts for small businesses and reduced tariffs.

It's the latest in a flurry of government efforts to prop up growth in recent months, such as boosting infrastructure spending and looser monetary policy.

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