German Economy Shrinks, Raising Recession Worry

Douglas A. McIntyre

Germany has the largest economy in Europe and is often considered the GDP engine of the continent. That role has been positive for the region for years. Now, its gross domestic product has contracted for a quarter, which raises questions about how enduring a recovery of Europe’s economy will be at the end of 2018 and into 2019.

Germany’s Federal Statistical Office announced that third-quarter GDP dropped 0.2% from the second quarter but rose 1.1% from the same period a year ago. Consumer demand was the primary culprit, a sign that increases in the workforce have lost the momentum this adds to economic activity. Since the fourth quarter is the largest for consumer activity, it will be telling if Germany’s GDP does not recover.

The announcement:

The Federal Statistical Office (Destatis) reports that, in the third quarter of 2018, the gross domestic product (GDP) shrank by 0.2% on the second quarter of 2018 after adjustment for price, seasonal and calendar variations. This was the first decline recorded in a quarter-on-quarter comparison since the first quarter of 2015. In the first half of 2018, the GDP had increased, by 0.5% in the second quarter and 0.4% in the first quarter.

The slight quarter-on-quarter decline in the gross domestic product was mainly due to the development of foreign trade. According to provisional calculations, exports were down while imports were up in the third quarter of 2018 compared with the second quarter of the year. As regards domestic demand, there were mixed signals. While gross fixed capital formation both in machinery and equipment and in construction was higher than in the previous quarter, final consumption expenditure of households declined. Government final consumption expenditure was slightly higher than in the previous quarter.

Compared with a year earlier, the price adjusted GDP rose by 1.1% in the third quarter of 2018 (calendar adjusted: +1.1%), following increases of 2.3% in the second quarter (calendar adjusted: +2.0%) and 1.4% in the first quarter of 2018 (calendar adjusted: +2.1%).

The economic performance in the third quarter of 2018 was achieved by 45.0 million persons in employment whose place of employment was in the domestic territory, which was an increase of 556,000 or 1.3% on a year earlier.