Germany's economy is getting hammered by the rest of the world's problems
- Trade war fears, ongoing Brexit negotiations, and the crisis surrounding Italy’s budget are all dragging on the German economy.
- Traditionally strong exports have disappointed in four of last six months. New rules on emissions for automakers aren’t helping.
- Europe’s largest exporter has also seen trade out of the country fall dramatically. It could get worse.
A US trade war, Brexit, Italy — you name it, Germany’s economy is suffering from it.
Europe’s economic powerhouse is in one of the longest boom phases of the postwar period, but it’s being pounded by a cocktail of international events that ING Economics says is casting doubts on future growth.
Germany’s Council of Economic Experts also paints a not-so-rosy picture: It expects 1.6% growth for the country this year and only 1.5% in 2019, well below expectations and down from a bumper 2.2% in 2017. Geopolitical issues were at the forefront of the council’s findings.
“The uncertain future of the global economic order and demographic change present the German economy with major challenges,” chairman of the Council of Experts, Christoph M. Schmidt, said in a report published on November 7. “That is why we are faced with important economic policy decisions.”
Trade war fears, ongoing Brexit negotiations, and the continued crisis surrounding Italy’s budget are all dragging on the German economy. That’s not all: “Temporary production-related problems and capacity bottlenecks are dampening the pace of expansion,” the report said.
Europe’s largest exporter has also seen trade out of the country fall dramatically, with exports dropping 0.8% month-on-month in September. Exports could continue to suffer in the event of a no-deal Brexit or new tariffs on autos out of the US as part of US President Donald Trump’s trade war. Export numbers dropped in four of the last six months and business confidence has been waning as investment opportunities weaken on geopolitical uncertainty, ING said.
Automakers are suffering, too
Germany’s malaise dampened the results of auto giants such as BMW. Third-quarter operating profit plunged 27% as the industry faces greater competition in global markets. The Financial Times reported on November 7 that new EU greenhouse-gas emissions targets for automakers — the EU seeks to reduce emissions by 30% — are behind a 0.1% contraction in Germany’s GDP in the third quarter as car companies struggle to adapt.
In addition, potential Trump tariffs on China are a major issue for Daimler and BMW, which both build SUVs in the US for the Chinese market.
Research from UBS says that economic risks are predominantly external, but warn that deteriorating labor market conditions could have an impact. The country’s aging population could also prove to be problematic going forward unless more immigration and improved working flexibility are encouraged across the German economy, according to the Council of Experts.
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