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German economy, Europe's power plant, contract for the first time this year

BERLIN-Germany's economy fell for the first time in 3½ years, confirming that Europe's anchor economy loses steam after years of…

BERLIN-Germany’s economy fell for the first time in 3½ years, confirming that Europe’s anchor economy loses steam after years of solid growth, increasing the risk of the continent.

Germany’s gross domestic product declined by 0.8% year-on-year in the third quarter, the worst known since the beginning of 2013, and unlike a US economy that grew at an annual 3.5% level in the third quarter.

Economists and managers polished by The Wall Street Journal said Europe’s largest economy was likely to bounce back in the coming months. But they warn that growth will slow, and they point to a number of risks for that scenario.

One is US President Donald Trump’s confrontational trade policy, which threatens to undermine Germany’s export-oriented economy. Others range from a possible return to market strikes over the fate of Europe’s single currency to a slower growth in China, which has long been an important market for German goods.

A draft agreement reached this week to seal Britain’s resignation from the EU could mitigate some problems, but there is still serious doubt that the agreement will be approved by the UK parliament.

German accounts for more than one fifth of the European Union GDP and has been the main engine for growth in the last decade, and a slowdown could have far-reaching repercussions on the world’s largest market.

The downturn in the German economy dampened growth in euro area 1

9 countries, the EU statistical office said Wednesday. Combined GDP in the euro-area countries increased by 0.7% annually during the third quarter, the weakest result since the beginning of 2013 when the euro area was seized by government debt and banking crisis. In addition to Germany, economic growth has been alleviated in Italy and the Netherlands, both economies that are also heavily dependent on exports.

“The first risk factor is trade conflicts, which can be expanded in the next few months,” says Ralph, chief economist at the German machine industry. “A month without growth should not release panic, but at the same time we see that growth is deteriorating and there are many unknowns.”

 A Volkswagen Touran SUV stands on a loaded conveyor on the assembly line at a factory in Wolfsburg, Germany.

A Volkswagen Touran SUV stands on a raised conveyor on the assembly line at a factory in Wolfsburg, Germany.


Photo:

Krisztian Bocsi / Bloomberg News

With its big trade surplus, Germany’s economy is ranked among the biggest winners of globalization alongside China. An increase in trade barriers would be terrible news for German companies whose supply chains extend worldwide.

The German industry is still uncertain as to how US trade policy will affect its business. When luxury car manufacturer

BMW
AG

revised its core earnings figures last week, the company warned that even that forecast may not last for another eight weeks to the end of the year.

“The trade-off between the US and China is a burden on the global economy,” said Nicolas Peter, BMW’s chief financial officer. “Should conditions deteriorate significantly, we can not rule out that it would have consequences for our forecast.”

This summer, when President Trump ordered 25% tariffs of another $ 200 billion Chinese goods, a ship for the United States carries two large press machines built by Germany

Heidelberger Druckmaschinen
AG

At a factory in China forced dock in Canada and its customers jumped over 25% price increase.

“We eventually sold the machines to someone else,” said a spokesman for Heidelberger Druck, adding that the company usually exported from Europe to the United States

Weakness in the automotive industry was the main source of Germany’s decline in the third quarter, but the weakness of Europe largest economy is wider.

German exports of goods – as opposed to services – fall 1.2% in September from the same period last year, which led to a 2.2% decline in transport to non-EU countries, according to the statistical body.

At the same time, export expectations in the manufacturing sector hit the lowest level of almost two years in October, according to a survey of approximately 2300 IFO manufacturers, an economic tanker for the supply side.

Against this background, the German government and the financial institutions have already trimmed their point of view. The government’s council of economic experts now expects growth of only 1.6% this year, compared to 2.3% earlier. By 2019, they predict growth of 1.5%.

“Economic activity has clearly peaked,” said Stefan Schneider, economist at Deutsche Bank.

Currently, economists and business leaders say that a recession does not show up imminent, but as core indicators begin to tense, they warn healthy shocks and German German can outweigh the kilts.

“The uncertainty is palpable,” says Wiechers.

Write to William Boston at [email protected] and Nina Adam at [email protected]

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