BERLIN (Reuters) - Weaker exports were the primary driver behind Germany’s first quarterly economic contraction since 2015, data showed on Friday, and while economists called it an aberration, they cited clear signs that Europe’s largest economy was cooling.
The GDP data, coupled with news that Germany’s private sector growth slowed more than expected, hit the euro and German bond yields in early trading.
“The global economy is weakening, and Germany as an export nation is feeling the brunt of that,” said Thomas Gitzel, Thomas Gitzel, chief economist of VP Bank Group.
The Federal Statistics Office confirmed a preliminary negative reading of 0.2 percent in the third quarter, the first contraction in the Germany economy since 2015.
Exports fell 0.9 percent on the quarter while imports rose 1.3 percent, with net trade knocking a full percentage point from growth.
“German economic growth has stalled,” the statistics office said, noting the economy grew just 1.1 percent on the year in the third quarter in calendar-adjusted terms, which take public holidays into account when measuring the number of days worked.
In the second quarter, the growth rate was 2.0 percent by the same measure.
It said investments in heavy machinery, equipment and vehicles rose 0.8 percent from the previous quarter, and as much as 0.9 percent in construction, but private consumption dropped 0.3 percent, mainly due to slow car purchases.
The data confirmed preliminary GDP data released on Nov. 14, with private spending down due to bottlenecks in the car sector stemming from the introduction of vehicle pollution standards, known as WLTP, a factor.
GERMAN PMI DROP
German private sector growth also hit its lowest level in November in nearly four years as factories churned out goods at a slower pace and activity in services also ebbed, the IHS Market survey showed.
The flash composite Purchasing Managers’ Index (PMI), which tracks the manufacturing and services sectors that together account for more than two-thirds of the economy, fell to 52.2 from 53.4 in October, the lowest reading since December 2014.
Manufacturers reported weaker demand from China, Italy and Turkey, with the sector recording the biggest monthly drop in new exports orders for almost six years, IHS Markit said.
The third-quarter GDP contraction was mainly due to weakness in the car industry as it struggled to adjust to new emission testing requirements. While that issue should not affect the fourth quarter, the industry remains vulnerable to trade disruptions as a result of threatened U.S. tariffs.
Gitzel said the new WLTP pollution test process had “left massive skid marks in the German car industry and as a result in private consumption and exports”. However, it should have only a temporary effect on consumption and exports.
He said private consumption, investment and construction would continue to fuel economic growth, but cautioned against expecting any massive “castles in the sky.”
KfW economist Joerg Zeuner said strong growth in imports and rising investment showed continued strength in domestic demand.
“The final quarter should show a noticeable rebound, however beyond that there will not be a return to continued high quarterly growth rates,” Zeuner said. “The previously robust economy likely peaked in 2017 and is cooling down.”
The German government expects the economy to grow by 1.8 percent this year and next, well below the calendar-adjusted expansion of 2.5 percent seen in 2017.
Provisional data showed a 3.7 percent increase in the imports of goods and services in the third quarter, compared to a year earlier, with exports rising 1.1 percent in the same period, the statistics office said.
Additional reporting by Rene Wagner; editing by Thomas Seythal and Jon Boyle
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