German Economic Growth Halves in Q3

Growth in leading eurozone economies slowed over the summer months and an expected German-led rebound at the end of the year may prove too short-lived for the European Central Bank to unwind its monetary stimulus.

Germany’s quarterly growth rate halved to 0.2% in the three months to September even though private consumption and state spending rose, as weak foreign trade slowed overall activity in Europe’s biggest economy, Reuters reported.

Confirming a preliminary reading, the Federal Statistics Office said on Thursday that net foreign trade subtracted 0.3 percentage points from GDP growth as exports fell 0.4% on the quarter and imports rose 0.2%.

State spending increased by 1% in July-September, contributing 0.2 percentage points to growth.

German authorities are spending billions of euros on accommodating and integrating more than one million migrants who have arrived since the start of 2015, many from war zones in Syria and Iraq.

Household spending rose by 0.4%, also adding 0.2 percentage points to growth, as consumers benefited from high employment, rising real wages and low borrowing costs.

Investment in construction edged up 0.3% in the third quarter while investment in plant and equipment fell by 0.6%, a sign that German firms are holding off investment.

 Downbeat Report

In an unusually downbeat report, the ECB said on Thursday that political upheaval on both sides of the Atlantic is raising financial stability risk in the eurozone, which could increase concern about some countries’ ability to finance their debt.

Elections and referendums could fundamentally shift the political landscape, triggering sudden capital flows and market volatility, it warned. Data for other eurozone countries pointed to a modest and fragile recovery in the 19-member currency bloc, driven mainly by domestic demand.

In Spain, the eurozone’s fourth biggest economy, growth slowed slightly to 0.7% in the third quarter from 0.8% in the April-June.

In France, the bloc’s No.2 economy, the central bank predicts growth to double to 0.4% in the final quarter from just 0.2% in the third. Industrial morale there held steady in November for the third consecutive month.

German business confidence also held steady at a high level in November, suggesting executives remain upbeat following Donald Trump’s victory in the US presidential election.

 Business Confidence Unchanged

German business confidence held at a two-year high in November, with the upbeat sentiment unchanged despite the election of Donald Trump as US president, the Ifo economic institute said Thursday.

“The economic upturn in Germany remains intact. The German economy seems to be unfazed by the election of Donald Trump as US president,” said the Munich-based Ifo in a statement.

The Ifo’s headline business confidence index reached 110.4 points in November, unchanged from the October reading, and the highest level since April 2014.

The survey suggests that the “German economy is in good shape,” said analysts at Capital Economics.

The construction sector showed the greatest optimism about the business climate, with a sub-index reaching a new record high.

Wholesaling was also positive, but the manufacturing sector signaled less optimism about the coming six months, “mainly due to less dynamic export prospects.”

 Trump Resistant

Donald Trump’s spectacular journey from Trump Tower to the White House appears not to have had any impact on the German economy to date. However, it may take some time for the ripples or waves to hit Berlin.

The general consensus is that uncertainty and pessimism, two ingredients that induce allergies in the financial sector, are the order of the day, tomorrow and many years to come.

Klaus Wohlrabe, an IFO economist, said: “Right now we are not seeing a huge impact on the result of our poll after Trump’s election. After the Brexit vote there was a two-month delay. That’s when we noticed an increase in uncertainty. This could happen again, that companies will become more sceptical or more cautious in December. After all, Trump’s remarks are very erratic, meaning that we first need to see what is actually implemented from the things he announced during the election campaign.”