Germany: Rock in the wind or blown into recession?

Highlights:

• German economic activity decelerated sharply in H2/2018 and is close to stalling at the outset of 2019.
• One-off effects like temporary car sector weakness can no longer be blamed. Instead, we find that the weakening of global activity plays a major role for the slowing of the very export-oriented German economy.
• Moreover, uncertainty arising from the looming risk of US tariffs in general and on EU cars specifically as well as the risk of a crash Brexit is weighing on sentiment.
• Looking ahead, indicators for domestic activity still look sound. Robust private consumption (thanks to solid wage and employment growth) and a supportive fiscal policy stance amid likely reduced uncertainty will support activity.
• Germany has plenty of leeway to stimulate activity further. However, we think that the situation is not yet serious enough to trigger additional fiscal policy measures.
• We expect no quick rebound of growth but look for improvement in H2. In 2019 we see annual growth at only 0.7 %. 

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