German economy avoids recession in 3Q, but challenges remain

Germany's economy, Europe's largest, avoided entering a widely-anticipated recession in the third quarter as strong domestic spending helped spark modest growth, the Federal Statistical Office reported Thursday.

The Wiesbaden-based agency said the economy grew 0.1 per cent in the July-September period over the previous quarter, largely driven by public and private consumption. Exports rose as well, while imports remained roughly at the second quarter level, the agency reported.

It said, however, that the second quarter contraction was greater than preliminary figures had shown, with the economy shrinking in the April-June period by 0.2 per cent compared to the 0.1 per cent originally reported.

Two straight quarters of declining output is considered a technical recession, which many economists had predicted that Germany had entered in the third quarter.

Though the recession was averted, economists warned Germany remains in a de facto stagnation and noted it faces strong headwinds.

Among other things, the dispute between US President Donald Trump and the Chinese leadership over China's trade surplus with the US has dampened trade and industrial output by raising uncertainty about whether and where more tariffs might be imposed.

Another negative is uncertainty about the date and terms of Britain's departure from the European Union.

Liechtenstein's VP Bank cautioned that commercial disputes are delaying investments in industry, and key areas like the automotive sector are struggling with lower demand and massive challenges like the shift away from internal combustion engines to electric vehicles.

According to the official version Germany has avoided a recession but this does not change the overall difficult economic situation, the bank said in a research note.

Services companies and the jobs market have held up well in Germany, but the industrial sector, led by automobiles and factory machinery, has seen declines amid trade tensions.