The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, on January 7 2019. Picture: REUTERS
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, on January 7 2019. Picture: REUTERS

Berlin — The German economy stalled in the final quarter of last year, narrowly escaping recession, as the fallout from global trade disputes and Brexit threatens to derail a decade-long expansion in Europe’s economic powerhouse.

GDP in Europe’s biggest economy was unchanged for the quarter, the German Federal Statistics Office said on Thursday. A Reuters poll had forecast growth of 0.1%.

German companies are grappling with a cooling global economy and trade disputes triggered by US President Donald Trump. It also faces the risk that Britain will leave the EU in March without an agreement on the terms of its withdrawal.

“Germany got away with a black eye,” DekaBank economist Andreas Scheuerle said of the fourth-quarter numbers. “But the first quarter is not looking like it is going to be easy either, as political uncertainties are weighing heavily on corporate confidence.”

With growth unchanged in the fourth quarter, the economy escaped recession — defined as two or more consecutive quarters of contraction — after it shrank by 0.2% in the third quarter. Germany’s economy grew at its weakest rate in five years in 2018. Growth is forecast to shrink further to 1% this year, and the country faces a budget shortfall of around €25bn by 2023.

The fallout from the trade disputes and concerns about Brexit are weighing on business confidence, which fell for the fifth consecutive month in January.  Morale is also being depressed by weaker demand for German goods and services in China, the eurozone and emerging markets.

Furthermore, the government is concerned that technological innovation and the acquisition of German industrial know-how by foreign — particularly Chinese — companies could erode the manufacturing base on which much of Germany’s wealth is built.

German economy minister Peter Altmaier said last week that the government might take stakes in key domestic companies to prevent foreign takeovers — a shift in policy he said was needed to safeguard Germany’s prosperity.

Presenting an unusually gloomy outlook, Bundesbank oresident Jens Weidmann said late last month that the economic slump would last longer than earlier thought and more bad news was coming. With German growth stalling, the European Central Bank (ECB) is likely put off plans to normalise policy any further, economists say, and it is more likely to provide further stimulus, rather than less.

“The upside from today’s data is that it can hardly get worse,” ING economist Carsten Brzeski said. “Economic fundamentals remain solid, and from here on, chances of a rebound are still much higher than chances of yet another disappointment.” 

Reuters