Germany’s Economy Is Careening Towards Recession In Q3
FILE PHOTO: Aerial view of containers at a loading terminal in the port of Hamburg, Germany August 1, 2018. REUTERS/Fabian Bimmer/File Photo
Germany is again projected to grow by a scant 0.1% in the third quarter -- the same rate as in Q2 -- plunging Germany officially into an economic recession.
A recession is generally defined as two back-to-back quarters of negative growth. Germany's last recession took place in the first quarter of 2008 when the Great Recession took down most of the world's economies. Germany exited this recession in the first quarter of 2009.
The recession culprit this time around: Trump's trade war that is severely hurting Germany's export-dependent economy. More than 20 percent of Germany's economic growth stems for manufacturing and this sector has been the hardest hit by Trump's trade war against China.
Analysts point to the fact that because manufacturing supply chains are integrated worldwide, it is almost impossible for manufacturing to slow down in one country without also having a similar effect in another country.
Waning demand for German motor vehicles in China, the most important market for almost all German automakers, has lept pummeling German manufacturing. In 2018, almost one-fourth of all cars sold in China were German. BMW and Daimler sold more than one-third of their total car sales in China. Volkswagen sold 40% of its cars in China.
The bad news for Germany's automotive industry is that new car sales in China have fallen for 13 straight months. This debilitating slump began in the second half of 2018 when the trade war between China and the U.S. -- triggered by President Donald Trump in June 2018 -- began to intensify.
In 2018, Germany's vehicle sales in China fell by 3% year-on-year. Passenger car sales sank by more than 4% year-on-year -- the first decrease in over 20 years.
In addition to this already sickening news, German consumer spending is on the wane. Retail sales account for around half the German economy.
It took a heavier hit in July than anticipated by economists, falling to its biggest drop this year in the latest sign Europe's largest economy is sliding towards recession. Retail continued to recover in June, making the July slump more marked. German retail sales for the first seven months of this year rose 2.8 percent in real terms.
Data from the Statistisches Bundesamt (Federal Statistical Office of Germany) shows seasonally adjusted sales in real terms dropped 2.2 percent in July compared to June. This was the largest slump since the 2.9 percent drop in December 2018, and larger than the 1 percent analysts had predicted. The figure was also 4.4 percent higher year-on-year.
Weak Q2 retail sales confirm household spending won't be there to save the economy from plunging into a recession.
Then, there's the huge hit Germany's economy took from the economic mess that is Brexit.
Germany front-loaded its exports to the UK ahead of the first Brexit deadline on March 29. When this deadline passed, the British drew down their inventories and Germany's exports to the UK plummeted.
"This suggests negative GDP data for both 2019 H2 quarters," said a report by London-based financial firm TS Lombard. The firm estimates the third and fourth quarters will likely witness a decline in German economic.
Data released over the weekend by the federal government strongly suggest the German economy will continue to slow in Q3.