Features

Germany: a better global barometer than China or the US

It's quite possible that the country that matters most to the global economy is not China or the United States, but Germany.

BMW assembly line © Sean Gallup/Getty Images
Demand for cars in Germany has risen sharply

"Arguably, the economy that currently matters most is not China nor the United States, but Germany", says Jonathan Allum in The Blah! Europe's largest economy is heavily exposed to the global trade slowdown as exports comprise a whopping 47% of overall GDP. Many predicted a recession, but growth of 0.1% in the third quarter helped it dodge that "particular bullet".

Predictions of a technical recession had been based on "dismal industrial production data", but domestic demand came to the rescue, says Leonid Bershidsky on Bloomberg. Germans "bought 22% more cars in September" compared with the same month last year, while sales in the construction sector rose 6.5% year-on-year during the first eight months. Crucially, the unemployment rate of 3.1% remains at historic lows. That is keeping consumer spending ticking along.

The good news could prove a missed opportunity, says Ambrose Evans-Pritchard in The Daily Telegraph. "Gothic headlines" of recessionary doom would have increased the pressure on tight-fisted politicians in Berlin to ramp up fiscal stimulus.

Instead, policymakers have remained sanguine about the growth slowdown, Carsten Brzeski of ING tells the Financial Times. "After ten years of almost unstoppable economic growth, a shorter period of stagnation is not necessarily a big crisis."

The world's frail trio

Global growth is being dragged down by the "frail trio" of China, Japan and Germany, says Craig Stirling on Bloomberg. The only bright spot is strong US consumer data. Growth in China slowed again in October, while Japanese growth fell from 1.8% in the second quarter to just 0.2% in the third, sparking talk of a recession. Investors are hopeful that an upcoming US-China trade truce will prevent "a major rupture in the world trade system", says The Wall Street Journal. Yet a tariff rollback alone doesn't provide much reason for a sustained rebound.

Markets have other ideas. Germany's Dax index is up about 25% for the year to date. That is partly thanks to new monetary stimulus from the European Central Bank, which inflates asset prices, but also suggests optimism about 2020.

But the bulls are getting ahead of themselves, says Nick Andrews for Gavekal Research. Germany's manufacturing sector faces structural challenges and "it is too soon to be counting trade chickens It's not 2017 again in Europe".

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
14 Aug 2020
The road to driverless cars
Sponsored

The road to driverless cars

The electrification of the automotive industry is gathering pace, but does the real future lie in driverless vehicles?
12 Aug 2020

Most Popular

Gold and silver have taken a vicious beating – is the bull market over already?
Gold

Gold and silver have taken a vicious beating – is the bull market over already?

The gold price has tumbled recently, leaving traders nursing losses – just a nasty correction or has the gold bull market run out of steam? Dominic Fr…
12 Aug 2020
No, the UK did not “plunge” into recession yesterday
UK Economy

No, the UK did not “plunge” into recession yesterday

That the economy took a massive hit due to Covid-19 should be news to no one, says John Stepek. The real question is what happens now.
13 Aug 2020
Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020