German economy ‘flirts with recession’

17 February, 2020 12:00 AM printer

BERLIN: The German economy stagnated in the fourth quarter due to weaker private consumption and state spending, data showed on Friday, renewing fears of a recession just as Chancellor Angela Merkel’s conservatives are preoccupied with a search for a new leader.

Europe’s biggest economy has been losing momentum as its manufacturers linger in a recession prompted by a reduction in exports while its automotive sector faces disruption from an expensive shift to electric cars, report agencies.

Private consumption and state spending have been providing growth impetus and, if those two sectors continue to weaken this year, the risk of recession will rise.

“We think the economy will continue to flirt with recession in the first half of this year,” Andrew Kenningham of Capital Economics wrote in a note.

One bright spot from the preliminary data was an upward revision in the third-quarter growth figure to 0.2 per cent from a previously reported 0.1 per cent.

The Federal Statistics Office said investments in the construction sector grew in the fourth quarter, while spending on machinery and equipment declined considerably compared with the July-to-September period. Exports also weakened in the final three months of last year, it said.

Mrs Merkel’s government has resisted calls for a fiscal stimulus to put the economy firmly back on a growth path.

Those calls will grow louder if the economy fails to rebound, a likely scenario given that manufacturers are expected to face headwinds from the economic impact of the coronavirus outbreak in China.

But Merkel’s government is unlikely to loosen the purse strings. Her conservative party is in crisis after an eastern branch voted with the far right to elect a state governor, forcing the leader of her Christian Democrats (CDU) to abandon her ambitions to succeed the chancellor.

Annegret Kramp-Karrenbauer, who after the scandal said she would quit as CDU leader, is searching for a successor to lead the conservatives into the next election, due in October 2021.