German GDP growth slow; Weakest expansion rate since 2013

By Michael Nienaber and Thomas Seythal

The German economy expanded 0.6% in 2019, the weakest expansion rate since 2013 and a marked cooling from the previous year, as export-dependent manufacturers in Europe’s largest economy faced increased headwinds from trade disputes and less foreign demand.

The preliminary estimate by the Federal Statistics Office followed GDP growth of 1.5% in 2018. “This means the German economy grew for the tenth year in a row. This is the longest growth period since German reunification [in 1990],” the statistics office said.

Stronger private consumption, higher state spending and booming construction helped support growth in 2019 as struggling manufacturers dragged on activity.

Deka Bank analyst Andreas Scheuerle said the German economy had ended an unusually weak year marked by “bad luck and misery”, pointing to tariff disputes and Brexit uncertainty.

“Without the domestic demand — this means private consumption, state spending, and construction — the German economy would have entered a recession,” Mr Scheuerle said.

The statistics office said the public sector, including federal states, municipalities and social security systems, had a budget surplus of €49.8bn or 1.5% of GDP, down from €62.4bn or 1.9% in 2018.

Chancellor Angela Merkel’s ruling coalition is at odds over how to spend the federal government’s budget surplus of €13.5bn.

Her conservatives are calling for corporate tax cuts, while centre-left finance minister Olaf Scholz favours more public investment.

Matthew Cady, investment strategist at Brooks Macdonald, said the growth data was neither strong enough to assuage growth fears in the eurozone, nor weak enough to convince German policymakers to unleash a big fiscal response.

“It will also likely frustrate the new ECB president [Christine] Lagarde’s efforts to push for greater eurozone co-ordination between monetary and fiscal policy,” he said.

Exports edged up 0.9% last year after a 2.1% increase in 2018 while imports rose 1.9% after a 3.6% jump, the statistics office said.

German consumers have benefited recently from record-high employment, inflation-busting pay rises and low borrowing costs.

The construction sector has been boosted by a growing population and the European Central Bank’s zero interest rate policies.

- Reuters