The German economy posted a contraction for the first time since 2015 in the third quarter of 2018. The decline in the economy is attributed to the trade disputes and problems in the auto industry. The data raised concerns that long-term expansion was faltering.
The German GDP was seen falling 0.2% in the third quarter. This was slightly better than the forecasts which expected a 0.3% decline.
Despite the fall in the third quarter data, the economy ministry said that it expects the economic growth to turn around in the fourth quarter of the year.
The ministry said that the slowdown in the periods between July and September was only temporary. This came amid the automobile companies struggled to adjust to the new emission rules.
The economic minister Peter Altmaier, however, brushed aside the data saying that the 0.2% contraction wasn’t a catastrophe.
On an annualized basis, the German economy was seen advancing 1.1% in the third quarter. This was slightly below the forecasts of a 1.3% increase.
The German economic ministry said, “The slight decline in GDP compared to the previous quarter was mainly due to foreign trade developments: provisional calculations show there were fewer exports but more imports in the third quarter than in the second.”
The decline in the third quarter was the first contraction in the economy since the first quarter of 2015. The decrease in the GDP came as the government noted just a week before that it expects weaker GDP growth in the third quarter.
The data shed light on the fact that rather than the economy slowing, it was more to do with the slowdown in the automobile sector.
The ministry added that the upturn was only temporary and that growth is expected to rise in the coming quarters.
Earlier in the week, the German ZEW economic sentiment showed that investors, however, do not expect to see Germany’s economy to recover from the current weak patch.
Firms attributed the weaker sentiment due to global trade concerns especially the U.S. and China. German firms were seen being concerned due to the instability also on domestic factors. This comes as the German Chancellor Angela Merkel’s coalition coming close to collapsing twice.
Analysts weighed in that the weak growth came despite the decline in the Euro’s exchange rate. This led to the conclusion that trade tensions and weakness in emerging markets weighed in during the quarter.
Last week, data from the Eurozone also showed that the third quarter’s economic data rose 0.2% on the quarter. This was in line with estimates. The third quarter growth was the same pace of increase seen in the second quarter.
The slowdown in the Eurozone’s GDP estimates was attributed to the contraction in Germany’s GDP which is the Eurozone’s largest economy. Economic growth from other regions including France and Italy were also seen to be weaker.
The slowdown in the Eurozone’s GDP comes as the European Commission released a report the week before where it noted that GDP growth would slow following last year’s steady economic expansion. The slowdown in the economy comes as the European Central Bank aims to end its bond purchases this December.
However, officials remain divided with the ECB’s Chief Economist Peter Praet commenting over the week that the Central Bank would not hesitate to start its bond purchase program if the economy deteriorated further.
Investors speculate that the ECB will be holding interest rates steady until the middle of next year following which the first rate hike from the ECB could be expected. So far, inflation has managed to hold near the Central Bank’s inflation target of 2.0%.