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Germany’s Growth Slows Amidst Weak Car Sales and Shrinking Exports to China

Last Updated September 23, 2020 12:21 PM
Jimmy Aki
Last Updated September 23, 2020 12:21 PM

Germany’s economy has witnessed slower growth than usual, according to data released from the Federal Statistics Office (Destatis). The data shows the country has been consistently growing for the past nine years, but the rate has slumped in the past 12 months.

While the country’s GDP grew by 2.2 percent in 2017, it fell to 1.5 percent in 2018, seeing a 37.8% percent decrease in growth.

The Eurozone hasn’t fared well either. Data from the EU’s statistical authority  Eurostat revealed that industrial production in the zone fell by 1.7% towards the tail end of the year.

According to the flash data released by Destatis, the silver lining in the growth came from local demand in 2018, as household and government expenditure were both positive, but lower compared to the preceding three years.

Both household final consumption expenditure (+1.0 percent) and government final consumption expenditure (+1.1 percent) were up on the previous year. However, the growth rates were markedly lower than in the preceding three years.

Last year November, the German economy had shrunk in the third quarter , for the first time in 3 years, as GDP fell by 0.2 percent quarter-on-quarter. Germany’s Economy Minister Peter Altmaier had downplayed the contraction, saying it wasn’t a “catastrophe.”

On the other hand, chief economist at ING Germany, Carsten Brzeski, believes the problems faced by the economy could be more significant than they think.

“It currently looks as if the German economy could get away with one black eye, but these days, economic strength in Germany doesn’t come effortlessly. What matters most is the fact that the slowdown of the German economy in the summer has been lasting longer than anticipated and seems to be more than only a temporary blip,”

he explained.

Problems with Carmakers

Since the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) came into effect in Europe, the car industry in Germany struggles. German carmakers have had to phase out older passenger models in favor of the stringent emission testing procedures.

Germany’s central bank, the Deutsche Bundesbank, noted in an economic report  that the struggles of the automobile industry might take longer than expected.

“Normalization in the automotive industry may be slower than initially thought. The weak order intake from Germany and the slowdown in registration numbers could be an indication that domestic consumers are currently holding back on purchases,” the bank explained.

Decreased Exports to China

Germany is also suffering from a decrease in exports to China. According to reports , Chinese imports from Germany fell by 37 percent in 2018, as the trade war with the U.S. continues to unsettle Beijing. The German auto industry association VDA had appealed  to both countries to bring an end to the tariffs which were affecting German car exports manufactured in the United States for the Chinese market.

Klaus Braeunig, managing director of the German Association of the Automotive Industry (VDA), commented on the situation, stating:

“Recent developments once again proved that the automotive industry and the jobs it provides depend heavily on free and fair trade. This is why we are deeply concerned about the direction that U.S. trade policy has taken since 2017. We should always keep in mind that together the EU and the U.S. account for 50 percent of world trade.”

Featured image from Shutterstock.