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

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
Why you should expect another stockmarket crash
Stockmarkets

Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee
16 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021