Reverse Economy – WORLD

Stand: 06:09 | Reading time: 3 minutes

reThe autumn of 2018 brings a great disappointment to the Germans. New estimates of economic performance reveal how vulnerable Europe's largest economy is. While the Federal Republic has always been considered the economic engine of the continent in recent years, it does not speak in the third quarter. On the contrary, between July and September, German economic output is expected to have fallen by about 0.3%. "The preliminary flash estimate of eurozone economic output published by Eurostat in the third quarter suggests it," said Stefan Kooths, professor at the Kiel Institute for the World Economy (IfW) . If the fears were true, it would be the biggest drop since the first quarter of 2013.

Economists measure economic output as gross domestic product or GDP. In simple terms, GDP expresses the number of goods and services produced over a period of time. Data on German GDP are not yet published. Official figures should be provided by the Federal Statistical Office on 14 November. However, the experts of the European Statistical Office have published an estimate of the economic development of the whole monetary union, which makes it possible to conclude on Germany.

According to Eurostat, output in the euro area only increased by 0.16% in the third quarter. This estimate is based on data from 17 Member States, which also include unpublished data on the situation of the German economy. All of this suggests that the German economy has been hit by the Achilles heel, the auto industry and exports. "The decline is probably due in large part to the decline in production in the auto industry," said Kooths. It refers to the difficulties that the new WLTP exhaust test standard, in effect since September, has brought to the industry.

German car manufacturers did not complete the new test procedure for all types of vehicles in time and therefore had to slow down production in the third quarter. The automaker Daimler shocked its shareholders, among others, because of the WLTP with already a warning on profits. In addition, the problems of transport in inland navigation resulting from the long drought and low level of rivers have hampered production in other sectors, such as the chemical industry. However, other economists also point to the effects of growing protectionism on behalf of Donald Trump, who has particularly hit an exporting country like Germany. "The economy in the euro area as a whole has hardly progressed in the third quarter," says Jörg Krämer, chief economist at Commerzbank. Besides the difficulties of the automotive industry with the new test methods, this is mainly due to the decline in Chinese demand. A trade war would be a particular risk for Germany.

The question of whether Germany is on the way to a recession will become apparent in the current fourth quarter. An isolated decline over a period of three months is not yet a reversal. Only two consecutive declines, economists speak of slowdown. However, the majority of economists remain optimistic that a recession can be avoided. "Overall, the weakness of the third quarter should largely be due to special effects and therefore should not allow any conclusions to be drawn about the underlying economic structure," Kooths said. Given the backlog of large orders, economic development is expected to continue to rise. The researcher predicts a "significant recovery in economic output" in the last quarter of the year.