After the global slow down and disappointing growth results from many countries, now Germany also reported the slowest economic growth since the last five years. The slowdown in Germany has added the problems of global downturn and trade conflicts between the countries.

Germany’s Government sources said that the economic growth eased in 2018 to 1.5 percent from 2.2 percent in 2017. However, being the major and dominant economy of the European Union, it successfully avoided the fear of fourth quarter recession.

Growth in Germany is traditionally linked with export, and it is also supported by domestic expenditures. Germany has managed well the unemployment rate at 3.3 percent. These all helped the country to bear the shock of the global downturn. It should be noted here that Germany has been growing for the last nine years.

The slowed growth of Germany has again raised the fear about the currency which is used by 19 European nations “Euro.” Along with the currency, the European Union is already facing the threat of Britain’s departure creating uncertainties about the future of the Union. Though the United States and Europe have imposed some tariff on each other, the biggest factor here would be the trade war between the United States and China. There are lots of companies that do businesses in these two countries; the trade war has lowered the investor’s confidence in those companies ultimately affecting the global growth.

China is Germany’s largest trade partner and owing to the large car market; China has been providing avenues of profit in car sales for German car makers like Daimler, Volkswagen, and BMW.

The European Central Bank has indicated that if the economy worsens further, it will have to postpone the first interest rate increase of the year by a few months. However, as per experts, the rate should remain unchanged through late 2020 owing to the condition of the economy.

German output fell by 0.2 percent in the third quarter due to many temporary factors like stricter emission testing rule and low demand in China. Though the fourth quarter figures are yet to come, two consecutive falls in quarter’s output ultimately imply situation very similar to a recession.

The statistics agency said they did not see a minus growth in the fourth quarter instead they are hopeful about positive growth. But, the agency cautioned that the figures as of now are on a preliminary stage and possess a huge potential to change at the final moment.

The official economic data released in Germany has said that there was weak growth in 2018 and has just managed to avoid a recession. Germany’s economy is the largest in Europe, and this slowdown has brought an end to the boom they saw in the past decade. As per the data released by the federal statistics, there was a reduction in growth from 2.2 % which was reported in the last two years to 1.5 % in 2018. In terms of GDP for 2018, it was €40,900 per person or €3.4 trillion. There was slight cheer at the end of the year when there were signs of recovery and dodging recession by a blink after having two-quarters of a dip in the output. The growing concern is that the slowdown is longer than what was anticipated and is not a temporary deviation anymore.

Possible Reasons for this Setback:

• The government and a few experts say the reason for this economic state is due to a few ‘one-off’ factors which will probably be rectified in the coming year.
• Low levels of water in the Rhine due to drought which affected raw materials shipping and chemical shipments.
• Trouble in the auto manufacturing sector due to bottlenecks in production. The companies have to adhere to new emission standards set by the European Union which impacted production and sales.
• Brexit impacted Germany as trade suffered.
• US President Trump’s trade war with China and Brussels impacted exports.

A Silver Lining in the Gloomy Economy

The silver lining in all this economic gloom in Germany is that the consumer spending is good as the unemployment levels are at a historical low and the domestic fundamentals are strong.

Though economists are optimistic, lack of new structural reforms, lack of investment in infrastructures like airlines, railway, and digital technologies can hugely impact the economy and push it down further.

Many European countries like Italy are also in recession, and the going is getting tougher as the Eurozone as a whole is reeling from a decrease in demand for services and goods in 2018. That has made many forecasters alter their projections and predict a lower growth year on year. Moreover, there are many political concerns which have dented the consumer and business confidence which has resulted in less production. Also unless these concerns are addressed quickly even increased domestic spending will not be able to offset the impact of slow exports.

The United Kingdom’s economy has slowed down in the last three months and at the lowest in November. And it is the weakest in the past six months. The UK Office for National Statistics (ONS) said the economy grew by 0.3 percent during this period and it is 0.4 percent less than the growth of the last three months.

As per the ONS, due to weakened overseas demand, the manufacturers have suffered falls in output for the longest period. As per the statistics, the economy grew by 0.2 percent in November, and it is up from 0.1 percent in October.

Decline-

As per Rob Kent-Smith, head of national accounts at the ONS, the growth in the UK continued to slow from November after performing way better in the middle of the year. Accountancy and housing sector grew by large numbers, but many other sectors saw a sluggish growth.

Manufacturing also saw a poor growth as the car production and pharmaceutical industry performed poorly.

Month on month, construction growth was at 0.6% in November. Manufacturing contracted by 0.3%, while services activity rose at 0.3%. Production as a whole contracted to 0.4%.

Lot many global situations like the trade war between the United States and China and the tumbling growth of the global economy also had spill-over effects on the UK economy.

The case is not limited to the UK only, but figures from Germany and France also showed a similar trend.

The ONS also said the UK economy was returning to moderate growth after growth volatility earlier in 2018.

The uncertainty over the Brexit finalization also has a large impact on the sentiments of the people on spending pattern. Not only the domestic demand but also the demand from the trade partners are also declining.

Another data showed that once erratic items like aircraft orders were stripped out, the divergence between imports and exports – the trade deficit – widened to £9.5bn in the three months to November.

Big brands like JLR, Apple are also facing the crunch in demand owing to the slower global growth and less demand from China. Now it has become evident that large economies like the UK should not depend on specific partners rather than diversifying the consumer base countries.

Along with all these global woes, Brexit headwind is also creating many hurdles for the UK businesses. So, to put the economy again on track, UK should first clear the problems at home by finalizing details about Brexit. Then it should think the ways to tackle the global pressure.