Shrinking German economy 'on edge of recession' as exports stutter

A slump in exports sent Germany’s economy into reverse in the second quarter, data showed, as its manufacturers bore the brunt of a global slowdown amplified by tariff conflicts and uncertainty over Brexit.

Gross domestic product (GDP) fell 0.1% quarter-on-quarter, in line with a Reuters poll of

analysts, as several observers raised prospects of another contraction in the third quarter, and the industrial sector suggested the government should ditch its balanced budget and kick-start growth via fiscal stimulus.

On a calendar-adjusted basis, the annual growth rate in Europe’s largest economy slowed to 0.4% in the second quarter from 0.9% in the first, Wednesday’s Federal Statistics Office data showed. For 2019 overall, Berlin expects growth of just 0.5%.

“The bottom line is that the German economy is teetering on the edge of recession,” Andrew Kenningham from Capital Economics said, noting that exporters were facing an even bigger potential hit if a threatened no-deal exit from the EU by Britain actually materialized on Oct. 31.

Many economists define a recession as two consecutive quarterly contractions.

Despite Wednesday’s headline quarterly figure matching expectations, markets also took fright, with the yield on Germany’s benchmark 10-year government bond hitting a record low of -0.624% DE10YT=RJR.

The global slowdown has impacted growth across western Europe, but Germany’s traditionally export-reliant economy has been particularly vulnerable.

The statistics office said that net trade slowed economic activity as exports recorded a stronger quarter-on-quarter decrease than imports.

Construction was also a drag, after the sector pushed up overall growth in the first three months due to an unusually mild winter.

“Today’s GDP report definitely marks the end of a golden decade for the German economy,” Cars ten Brzeski from ING said.

“It was a decade of strong growth on the back of earlier structural reforms, fiscal stimulus, localization at its peak and steroids provided by the ECB in the form of low-interest rates and a relatively weak euro.”

DOMESTIC SAFETY NET?

• Reuters