German economy likely to contract in fourth quarter, DIW says

BERLIN (Reuters) - The German economy probably shrank in the fourth quarter as export-oriented manufacturing continued to decline, the DIW economic institute said on Friday.

FILE PHOTO: Employees work on electric cargo bicycles at the production plant of e-bike manufacturer Riese & Mueller in Muehltal near Darmstadt, Germany, August 30, 2019. Picture taken August 30, 2019. REUTERS/Ralph Orlowski

DIW said Europe’s largest economy probably contracted by 0.1% in the October-December period.

“We could at most hope for stagnation,” said DIW economist Claus Michelsen.

DIW’s forecast contrasted with a rosy estimate by the Ifo institute, which this week said Europe’s biggest economy probably expanded by 0.2% in the fourth quarter.

Manufacturing has been weakening since the start of the year, slowing a 10-year growth cycle. Consumption, state spending and construction have been cushioning the economy.

German manufacturers are coping with trade disputes and Brexit uncertainty. The car industry also faces a costly shift to electric vehicles and stricter emissions rules.

Economy Minister Peter Altamier said that increased clarity on Brexit has helped Germany avoid a recession.

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Following Prime Minister Boris Johnson’s election victory, the British parliament will vote on his deal to leave the European Union on Friday. The bill should face little opposition.

Altmaier also told Der Spiegel magazine that he expects trade tensions between the United States and the EU to ease. Donald Trump and the European Commission have imposed tariffs on traded goods and the U.S. president has threatened to impose levies on European cars and car parts.

“I don’t think that the U.S. president has a big interest in having a trade war with Europe one year before the election,” Der Spiegel quoted Altmaier as saying.

DIW said that despite the gloom, German industry was showing signs of optimism.

“German companies are again looking positively into the future, especially when it comes to their international business,” said Michelsen.

The economy narrowly avoided recession in the third quarter, growing by 0.1% in the third quarter after contracting by 0.2% in the April-June period.

A strong labour market is expected to continue providing support for the economy. Data published on Friday showed that real wages rose by 1.9% in the third quarter compared with the same quarter in 2018 - the largest increase since early 2016.

Reporting by Joseph Nasr, editing by Larry King