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Germany barely avoids recession with zero growth

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FRANKFURT, Germany (AP) — Germany narrowly avoided a recession in the fourth quarter, reporting zero growth as foreign trade made little contribution to Europe’s largest economy.

The result was weaker than the 0.1 percent growth expected by market analysts and added to negative signs piling up about the 19-country eurozone economy.

The lackluster figure released Thursday by the state statistics agency followed a 0.2 percent fall in output during the preceding third quarter.

Business spending on machinery and equipment as well as construction supported the economy in the fourth quarter and kept Germany from suffering two straight quarters of negative growth, one definition of a recession.

Slowing global trade amid U.S.-China trade tensions has been holding back Germany’s export-focused economy. Growth last year was also hit by troubles in the auto industry when automakers had difficulty getting new cars certified under new emissions tests, and by low water on the Rhine River that interrupted commerce. The slowdown led the European Commission last week to cut its growth forecast for Germany for this year to 1.1 percent from 1.8 percent.

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The weak second half followed stronger performance in the first six months, leaving growth for all of 2018 at 1.5 percent. For the fourth quarter, the year-on-year growth rate slumped to 0.6 percent, tracing a steady decline from 1.2 percent year-on-year in the third quarter and 2.0 percent in the second.

Germany’s sluggishness has held back the economy across the countries that use the euro. The eurozone grew by just 0.2 percent in the fourth quarter, the same as in the previous three-month period.

Recent economic indicators have been weak, leading to speculation that the European Central Bank may hold off raising interest rates longer than originally expected. The bank has said it will hold rates at record lows at least until “through the summer” of this year. Analysts say it may push back that earliest possible date in its policy statement if signs of weakness continue.

Andrew Kenningham, chief Europe economist at Capital Economics, said the fourth-quarter weakness “bodes ill for economic growth this year too.” He said the fourth-quarter weakness could no longer be attributed to the auto sector problems since vehicle production edged up in the last three months of the year. He forecast 1.0 percent growth this year but added “there are significant downside risks to this forecast.”

Economist Carsten Brzeski at ING Germany said that “the German economy escaped a technical recession with the smallest margin possible. The black eye just got blacker.” He said, however, that many economic fundamentals remain strong. A low unemployment rate of 3.3 percent is helping support domestic demand.

“The upside from today’s data is that it can hardly get worse,” Brzeski said. “Economic fundamentals remain solid and from here on, chances of a gradual rebound are still much higher than chances of yet another disappointment.”

The Western Journal has not reviewed this Associated Press story prior to publication. Therefore, it may contain editorial bias or may in some other way not meet our normal editorial standards. It is provided to our readers as a service from The Western Journal.

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