Shrinking German economy 'on edge of recession' as exports stutter

Gross domestic product (GDP) fell 0.1 per cent quarter-on-quarter after a confirmed growth rate of 0.4 per cent in the first three months of the year. -Reuters

BERLIN - Slumping exports sent Germany's economy into reverse in the second quarter, with prospects of an early recovery slim as its manufacturers struggle at the sharp end of a global slowdown amplified by tariff conflicts and fallout from Brexit.

Overall output fell 0.1% quarter-on-quarter, data showed on Wednesday. With pressure growing on a thus far reluctant government to provide more fiscal stimulus, the economy minister said action was needed to prevent a second consecutive quarter of contraction that would tip the country into recession.

The global slowdown, reinforced by Chinese industrial output expanding at its lowest rates in 17 years in July, has broadly impacted the euro zone, where corresponding data showed second quarter growth halved to 0.2%.

But Germany's traditionally export-reliant economy - Europe's largest - has been particularly vulnerable, amid signs that the boost it has received from a sustained period of surging domestic demand is waning.

"Today's GDP report definitely marks the end of a golden decade for the German economy," said ING analyst Carsten Brzeski.

"Trade conflicts, global uncertainty and the struggling automotive sector have finally brought (it)... down on its knee."

On a calendar-adjusted basis, annual growth slowed to 0.4% from 0.9% in the first quarter, the Federal Statistics Office data showed, and for 2019 overall Berlin expects growth to drop to just 0.5% from last year's 1.5%.

The economy ministry called the outlook subdued, noting that Britain's scheduled exit from the EU on Oct. 31 looked likely to be a disorderly one, while Economy Minister Peter Altmaier said Wednesday's data was a wake-up call.

"We are in a phase of economic weakness but not yet in recession. We can avoid that if we take the right measures," Altmaier told mass-market daily Bild.

His ministry said impetus was unlikely to come from the industrial sector, whose BDI association - in an unusual move -joined a growing chorus of voices urging the government to kick-start growth by ditching its balanced budget rule and finance more public investments through new debt.

A government spokeswoman said Berlin did not currently see "any need for further measures to stabilize the economy," which was still expected to grow slightly this year.

Despite Wednesday's headline quarterly figure matching expectations, markets also took fright, with the yield on Germany's benchmark 10-year government bond hitting a record low of -0.624% .

"The bottom line is that the German economy is teetering on the edge of recession," Andrew Kenningham from Capital Economics said, noting that exporters were facing an even bigger potential hit if a no-deal Brexit materialized. -Reuters