This morning has brought what has become pretty much a set piece event as we finally got the full report on economic growth in Germany in 2019.
WIESBADEN – The gross domestic product (GDP) did not continue to rise in the fourth quarter of 2019 compared with the third quarter of 2019 after adjustment for price, seasonal and calendar variations.
Regular readers of my work will have been expecting that although it did create a small stir in itself. This is because many mainstream economists had forecast 0.1% meaning that they had declare the number was below expectations, when only the highest Ivory Tower could have missed what was happening. After all it was only last Friday we looked at the weak production and manufacturing data for December.
Annual Problems
One quarterly GDP number may not tell us much but the present German problem is highlighted if we look back as well.
In a year-on-year comparison, economic growth decelerated towards the end of the year. In the fourth quarter of 2019, the price adjusted GDP rose by 0.3% on the fourth quarter of 2018 (calendar-adjusted: +0.4%). A higher year-on-year increase of 1.1% had been recorded in the third quarter of 2019 (calendar-adjusted: +0.6%).
As you can see the year on year GDP growth rate has fallen to 0.4%. The preceding number had been flattered by the fall in the same period in 2018. Indeed if we look at the pattern for the year we see that even some good news via an upwards revision left us with a weak number.
After a dynamic start in the first quarter (+0.5%) and a decline in the second quarter (-0.2%) there had been a slight recovery in the third quarter of the year (+0.2%). According to the latest calculations based on new statistical information, that recovery was 0.1 percentage points stronger than had been communicated in November 2019.
If we switch to the half year we see growth was only 0.2% which is how the running level of year on year growth is below the average for the year as a whole.
The Federal Statistical Office (Destatis) also reports that the resulting GDP growth was 0.6% for the year 2019 (both price and seasonally adjusted).
Analysing the latest quarter
Trade
We can open with something that fits neatly with the trade war theme, and the emphasis is mine.
The development of foreign trade slowed down the economic activity in the fourth quarter. According to provisional calculations, exports were slightly down on the third quarter after price, seasonal and calendar adjustment, while imports of goods and services increased.
There is something of an irony here. This is because the German trade surplus was one of the imbalances in the world economy in the run-up to the credit crunch. So more imports by Germany have been called for which would also help the Euro area economy. Actually if we look back to last week’s trade release this may have been in play for a while now.
Based on provisional data, the Federal Statistical Office (Destatis) also reports that exports were up 0.8% from 2018. Imports rose by 1.4%. In 2018, exports increased by 3.0% and imports by 5.6% compared with the previous year. In 2017, exports were 6.2% and imports 8.0% higher than a year earlier.
Those numbers also show a clear trade growth deceleration and for those who like an idea of scale.
in 2019, Germany exported goods to the value of 1,327.6 billion euros and imported goods to the value of 1,104.1 billion euros.
Domestic Demand
There was something extra in the report which leapt off the page a bit.
After a very strong third quarter, the final consumption expenditure of both households and government slowed down markedly.
That will change the pattern for the German economy if it should persist and it somewhat contradicts the rhetoric of ECB President Lagarde from earlier this week.
support the resilience of the domestic economy
I did point out at the time that the use of resilience by central bankers is worrying. This is because their meaning of the word frequently turns out to be the opposite of that which can be found in a dictionary.
If we switch to investment then they seem to be adopting the British model of prioritising housing.
Trends diverged for fixed capital formation. While gross fixed capital formation in machinery and equipment was down considerably compared to the third quarter, fixed capital formation in construction and other fixed assets continued to increase.
Ch-Ch-Changes
Yesterday the European Commission released its winter forecasts for the German economy. So let us go back a year and see what they forecast for this one.
Overall, real GDP growth is expected to strengthen to 2.3% in 2018 and remain above 2% in 2019.
In fact the message was let’s party.
Economic sentiment continues to improve across sectors, suggesting continued expansion in the coming quarters. Survey data show expectations of improving orders, higher output and greater demand.
Whereas in fact the punch bowl disappeared as growth faded from view.
Yesterday they told us this.
Overall, real GDP growth is forecast to rebound
somewhat to 1.1% in 2020, helped by a strong
calendar effect (0.4 pps.).
That is pretty optimistic in the circumstances perhaps driven by this, where they disagree with what the German statistics office told us earlier today.
Resilient domestic demand supported growth.
Private consumption increased robustly amid
record high employment and strong wage growth.
All rather Lennon-McCartney
Yesterday,
All my troubles seemed so far away,
Now it looks as though they’re here to stay
Oh I believe in yesterday.
Comment
From the detailed numbers one can get a small positive spin as GDP increased by 0.03% in the final quarter of 2019. But the catch is that in doing so you note that the 107.19 of the index is below the 107.21 of the first quarter. Care is needed because we are pinpointing below the margin of error but if we look further back we see that the index was 106.18 at the end of the first quarter of 2018.
There are three main perspectives from that of which the obvious is that growth since then has been only very marginally above 1%. So the European Commission forecasts were simply up in the clouds. But we have another problem which is that looking forwards from then the Markit business surveys ( PMIs) were predicting “Boom! Boom! Boom!” in the high 50s as the economy turned down. They later picked up the trend but missed the turning point. Or if you prefer looked backwards rather than forwards at the most crucial time.
Now we await the impact of the Corona Virus in this quarter. Let me leave you with one more issue which is productivity because if yearly output is only rising by 0.4% then we get a broad brush guide by comparing with this.
The economic performance in the fourth quarter of 2019 was achieved by 45.5 million persons in employment, which was an increase of roughly 300,000, or 0.7%, on a year earlier.
The Investing Channel