German economy shrinks for the first time since early 2015

November 14, 2018 - 9:07 am

BERLIN (AP) — Germany's economy shrank slightly in the third quarter of 2018, the first quarterly decline since early 2015, due to declining exports and bottlenecks in getting new cars certified under tougher emissions tests.

The Federal Statistical Office reported Wednesday that economic output fell by 0.2 percent in the third quarter. The agency said exports were down and imports were up in the third quarter, meaning there was a net drag coming from trade compared with the previous three-month period.

The economy ministry said in a statement that "one-time effects in the third quarter lead to an interruption of the upswing" as major automakers including Daimler and Volkswagen had difficulty getting new cars certified under tougher emissions testing standards. That led them to discount cars ahead of the Sept. 1 test deadline, and caused a shortage of cars to sell to consumers afterward.

Moritz Degler, an economist at Oxford Economics, said that the drop in auto production and its knock-on effects through the industry's supply chain could have taken a half-percentage point off gross domestic product.

"This implies that the economy didn't slow much from 0.5 percent growth (in the second quarter)," he said.

He foresaw the economy bouncing back to 0.6 percent growth in the fourth quarter as the auto impact fades: "Germany's dire Q3 GDP figure is much more a reflection of the country's overreliance on an outsized automotive sector, than it would suggest a further decline in eurozone growth momentum."

The drop followed increases of 0.5 percent in the second quarter and 0.4 percent in the first. It comes as growth is slowing across the 19-country eurozone economy. Economists say that the easing in growth will likely not be enough to make the European Central Bank cancel plans to end its 2.5 trillion-euro ($2.9 billion) bond purchase stimulus at the end of the year.

ING economist Carsten Brzeski says signs point to a rebound, but that the third-quarter decline is "another wake-up call that political stability and strong growth are by no means a given."

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