February 25, 2019

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 %.