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November 15, 2018

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German economy takes a break in wake of ‘dieselgate’ scandal

Germany’s years-long run of steady growth came to a screeching halt in the third quarter, official data showed yesterday, with a widely-expected bottleneck in the vital car industry matched by broader structural concerns.

Federal statistics authority Destatis reported a 0.2 percent slump in gross domestic product between July and September.

That is the first fall in the measure since early 2015 and worse than forecast by analysts after months of troubling economic indicators.

The figure represents a marked slowdown from the fast-paced growth of 0.4 percent in the first quarter of the year and 0.5 percent in the second.

Economists still predict Germany will book its 10th consecutive year of expansion in 2019, although the pace this year and next will likely be slower than the 2.2 percent recorded in 2017.

In Berlin, the economics ministry highlighted the introduction of the so-called WLTP exhaust testing cycle in response to the “dieselgate” emissions cheating scandal as the main brake on growth.

New car registrations plunged more than 30 percent year on year in September as the new regulations hit and buyers at home and abroad held off purchases.

Economic think-tank IfW recently calculated that the third quarter saw the worst performance for the sector since 1997.

“Once this one-off effect has dissipated, the German economy’s upswing will continue,” the economy ministry predicted.

Economist Florian Hense of Berenberg bank added: “Domestic fundamentals remain healthy. Chances are that we are back to growth at around its trend rate of around 0.4 percent quarter on quarter already between October and December.”

Another temporary factor weighing on the German economy was the unusually dry summer.

Starved of rainfall, the vital economic artery of the Rhine ebbed to record lows, throttling river shipments, especially for firms in the chemical industry like BASF.

Longer-term structural developments may offer more for economists looking to Germany’s long-term prospects to worry over.

As well as the export slowdown, Destatis highlighted a fall in consumer spending.

ING pointed to inflation in energy prices that “completely erased” pay increases in recent months.

What’s more, Germany’s aging population and low unemployment rate are proving a drag on growth, as companies struggle to find new skilled workers to hire in sectors ranging from construction to the digital economy.

Internationally, the export-oriented economy is suffering from rising protectionist threats, the prospect of lower trade with Britain after it leaves the EU next year and intra-EU tensions over heavily-indebted Italy’s budget.




 

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