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

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?
US Economy

The US Federal Reserve is about to rein in its money-printing – what does that mean for markets?

America’s central bank is talking surprisingly tough about tightening monetary policy. And it’s not the only one. John Stepek looks at what it all mea…
23 Sep 2021
I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
The end of the bond bull market, and how to invest for it
Investment strategy

The end of the bond bull market, and how to invest for it

The great bond bull market looks to be over, and you probably don’t want to be holding government bonds, says Merryn Somerset Webb. Here’s what you sh…
21 Sep 2021
Warsaw and Stockholm: the unexpected new threats to the City of London
UK stockmarkets

Warsaw and Stockholm: the unexpected new threats to the City of London

London has seen off challenges from Frankfurt and Paris, but two other booming financial centres are a bigger threat, says Matthew Lynn.
19 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021