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German Economy Looks Ill-Prepared for What’s Coming in 2020

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German Economy Looks Ill-Prepared for What’s Coming in 2020

  • GDP flatlined in fourth quarter, equipment investment dropped
  • Coronavirus impact could hit Germany’s export-reliant industry
The Long Delayed And Over Budget Stuttgart 21 Railway Project
Photographer: Alex Kraus/Bloomberg

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Germany entered 2020 with a flatlining economy and manufacturers in distress, leaving it ill prepared for continued trade uncertainty and the new coronavirus threat.

Europe’s largest economy has been battered by multiple forces that have turned it from a growth engine to one of the region’s weakest performers. Expansion last year was just 0.6% and 2020 may be little better. The euro-area economy grew 1.2% in 2019, though the pace was just 0.1% in the fourth quarter.

Germany avoided fourth-quarter contraction, but economy is still weak

On top of global factors, Germany has had to deal with domestic issues from struggling lenders to climate-related upheaval in the car industry. More recently, politics has added to the litany of negative headlines, with the resignation of Angela Merkel’s heir-apparent as chancellor.

One bright spot in has been the labor market -- in Germany and the broader euro area. Figures on Friday showed employment growth in the 19-nation bloc accelerated to 0.3% at the end of 2019.

If looking for more positives, Germany avoiding contraction -- which some saw as a risk -- should silence speculation for the moment that it’s getting closer to a recession.

But the bad news still dominates, and is weighing on the euro, which is at the lowest against the dollar in almost three years. Yields on 10-year German debt remain stuck well below zero.

In the fourth quarter, Germany saw a sharp slowdown in consumer and government spending, a significant drop in equipment investment, and a drag from trade.

What Bloomberg’s Economists Say

“The business surveys that give the best read on GDP suggest the outlook for 1Q is a little brighter. We don’t expect industry to weigh on growth as much as it did in 4Q and see a modest rebound in 1Q.”

-- Jamie Rush. Read the GERMANY REACT

2020 was supposed to see recovery, an outlook that’s now in question amid continued weakness in industry plus fallout from the virus outbreak in China.

Business is already feeling the impact of the epidemic. Volkswagen AG was among the companies forced to shut their Chinese plants, and Daimler sees weaker Mercedes Benz sales this year.

In its economic outlook this week, the European Commission singled out the coronavirus, which has killed more than 1,000 people in China, as a “key downside risk.”

The Asian country is a huge market for German companies. Outside the European Union, it’s second only to the U.S. in importance, with close to 100 billion euros ($108 billion) of sales a year.

Manufacturer Osram Licht AG generates about 20% revenue in China and expects a hit to its bottom line because -- as with many companies -- it had to temporarily close a number of sites.

“Looking ahead, the latest soft indicators and industrial data for December do not bode well for the short-term outlook,” said Carsten Brzeski, chief German economist at ING in Frankfurt. “Also, the impact from the coronavirus on the Chinese economy is likely to delay any rebound in the manufacturing.”

— With assistance by Manus Cranny, Nejra Cehic, Kristian Siedenburg, and Harumi Ichikura

(Updates with euro-area GDP, employment, starting in second paragraph)