After notching a tepid growth rate in the prior quarter, the Bundesbank’s warnings that the economic engine of Europe faltered during the third quarter have proved accurate.
In what was its worst GDP print in three years, Germany saw its economy contract 0.2% in Q3, putting Europe’s strongest economy on the bring of a technical recession and providing the clearest sign yet that economic growth in the euro area stalled just as the ECB was preparing to end its massive bond-buying program with an eye toward raising interest rates late next year, according to Bloomberg.
While the hope is that the setback is related largely to new emissions tests that temporarily disrupted car production, the data will feed into fears that the euro area’s expansion has faltered as the Continent faces down risks including Italy’s confrontational populism, the looming Brexit, and the ongoing US trade conflict (which threatens to hammer the German auto industry if Trump changes his mind and decides to pursue tariffs). But analysts have found at least one scapegoat to blame the contraction: according to Bloomberg, Germany’s economic ministers hope the contraction was largely driven by new emissions tests that temporarily disrupted car production. Data from the VDA German carmakers’ association appears to bear that out, as the agency said September production plunged 24% compared with a year earlier.
At least one analyst said they expect auto production to rebound, as a second quarter of declining growth would be “highly unlikely” especially as that would put Germany in a recession.
“The good news is that the economy will expand at a decent clip so long as auto output doesn’t take another leg down – and that’s highly unlikely. We expect a material rebound as industrial production picks up a bit further through the quarter.”
Germany’s Economy Minister Peter Altmaier echoed that view during a speech in Berlin, saying the GDP figures were “not particularly pleasing but were also not a secret,” and that it’s no catastrophe, we had similar numbers in 2015.” If anything, the data showed us that the expansion “is a tender flower” that must be protected (the implications of which, we imagine, were not lost on Draghi).