Higher state spending helps German economy avoid recession in 4Q

Monday, 25 February 2019 00:00 - - {{hitsCtrl.values.hits}}

BERLIN (Reuters): Higher state spending helped Germany avoid a recession in the fourth quarter, data showed on Friday, as exports failed to provide impetus for a slowing economy.

Detailed data released by the Federal Statistics Office confirmed the economy stagnated in the fourth quarter after a contraction in the previous month.

A breakdown of the data showed that state spending had risen by 1.6%, contributing 0.3%age points to economic growth.

Exports and imports rose by 0.7% each on the quarter, resulting in net trade making no contribution.

Private consumption, which has been supporting the economy as exports weaken on trade frictions and bottlenecks in new car registrations, grew by a disappointing 0.2% and its contribution to growth was as little as 0.1%.

VP Bank Chief Economist Thomas Gitzel said stricter emissions rules that have hindered sales in the automotive sector had weighed on both exports and private consumption.

“We expect a catch-up effect in the current quarter,” he wrote in a note.

Germany’s dependence on exports for growth makes it particularly vulnerable to the trade disputes between the United States and both China and the European Union.

“Where do we go from here? What happens in the international arena will decide the prosperity and adversity of the German economy,” Gitzel said. “A resolution to the trade conflict will certainly leave a positive mark.”

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