Economic health Germany just misses a mild recession as it registers a slight gain in the fourth quarter

Europe's largest economy has cooled down, but 2018 was still above the 10-year average as low unemployment and higher wages fueled consumption.
Quelle: dpa
Construction is looking up after all.

(Source: dpa)

Germany narrowly avoided a recession in 2018 as gross domestic product registered a slight gain in the fourth quarter after a decline in the third.

Albert Brackmann, director of macroeconomic data at the Federal Statistics Office, said Germany's economy noticeably cooled in the second half of 2018, bringing growth for the full year down to 1.5 percent after reaching 2.2 percent in 2017 and 2016. Growth in the fourth quarter was positive, the statistics agency said. It will provide figures in February.

The downturn in the third quarter, just 0.2 percent, was attributed to a disruption in auto production due to new emissions testing and an interruption of river transport due to the drought. A recession is defined as two quarters of negative growth in a row.

After badly missing their 2018 forecasts of growth anywhere from 2.0 to 2.6 percent, economists were more cautious with their projections for 2019. On average, they expect Germany's economy to grow 1.5 percent — assuming Europe is able to avoid a hard Brexit, a debt crisis and a trade war with the US.


But it's not all bad news: Low unemployment and higher wages fueled consumption in Germany last year. Wages and salaries were up 4.8 percent, the biggest increase since 1994. Employment increased by 562,000 to a record 44.8 million, and unemployment sank to 3.2 percent, the lowest level since reunification. Service growth outpaced manufacturing growth for the first time in five years.

Overall, though, Brackmann said economic growth was still stronger in 2018 than the 10-year average of 1.2 percent. It was the ninth year in a row of growth, with more of the same expected this year.

Government investment rose 8.8 percent as roadbuilding and other infrastructure projects kicked into gear. The private sector also made bigger investments in equipment, construction and other installations.

The export economy held up but didn't drive growth as much as it had in the past. Exports were up 2.4 percent and imports up 3.4 percent, in both cases weaker than in the previous year.

The 2019 outlook for exports is the cloudiest. In addition to the threat of Brexit and trade wars, the slowing economy in China threatens to affect German firms. On the plus side, the combination of positive growth and low interest rates led to the fifth government budget surplus in a row, a record €59.2 billion in 2018.

Donata Riedel covers the economy for Handelsblatt. Darrell Delamaide adapted this article into English for Handelsblatt Today. To contact the author: [email protected]