German economy contracts on weak foreign trade, auto bottleneck

BERLIN (Reuters) – Germany's economy contracted for the first time since 2015 in the third quarter of global trade disputes and problems in the auto industry, the traditional growth engine of exports to reverse, which concerns that long expansion is faltering.

Gross domestic product (GDP) in Europe's biggest economy fell 0.2 percent quarter-on-quarter, the Federal Statistics Office said on Wednesday. That compared with a Reuters forecast of 0.1 percent drop.

But the Economy Ministry said the upswing would have been slowed down, adding that the slowdown between July and September had been a drag on WLTP.

"A 0.2 percent contraction is not a disaster," Economy Minister Peter Altmaier said in Berlin.

Compared with the same quarter of the previous year, the economy grew 1.1 percent in the third quarter, the calendar-adjusted data showed. Analysts polled by Reuters had expected 1.3 percent.

"The slight decline in GDP compared to the previous quarter was primarily due to foreign trade.

Separately, Germany's BDI Industry Association cut its 2018 export growth forecast to 3 percent from 3.5 percent on Wednesday, the second cut in as many months.

The third-quarter dip in GDP was the first time the economy has contracted since the first quarter of 2015.

The government has flagged a weaker third quarter last month, citing bottlenecks in the sector stemming from the introduction of WLTP as a factor.

"Germany does not have an economic problem but rather an auto sector problem. Due to the sluggish certification of cars, because production has been noticeably reduced, "said Andreas Scheuerle at DekaBank.

The Economy Ministry said that it had probably been changed to GDP.

"The upturn was merely disrupted during the third quarter," the ministry said in its monthly report, adding: "Once these special effects have dissipated, the German economy will continue."

However, the ZEW research institute said on Tuesday that investors do not expect the German economy to recover rapidly from the weak patch.

Concerns are growing in the German economy, which is in its ninth year of expansion, on the impact of global trade disputes and Britain's departure from the European Union.

In addition to the impact of U.S. President Donald Trump's abrasive trade policy, German firms are concerned about where Chancellor Angela Merkel's awkward 'grand coalition' has come close to collapsing twice.

Carsten Brzeski, an economist at ING, said that even though it is expected in the fourth quarter, the GDP figures were "wake-up call that political stability and strong growth are by no means a given".

"The poor export performance, despite a weak euro exchange rate, suggests that trade tensions and weaknesses in emerging markets could continue to weigh on Germany's growth performance," he said in a research note.

Last month, Germany's DIHK Chambers of Industry and Trade cut its 2018 growth to 1.8 percent from 2.2 percent and predicted to slowdown to 1.7 percent next year in the economy.