Germany: The end of a golden decade | Snap - ING Think

End of golden decade

Today’s GDP report definitely marks the end of a golden decade for the German economy. Since the end of the 2008/09 recession, the economy has grown by an average of 0.5% QoQ every quarter. In fact, the economy grew in 35 out of the last 40 quarters. However, under the surface of these impressive headline numbers, a worrisome trend has emerged. Since 3Q 2018, the economy has been in a de facto stagnation, with quarterly GDP growth at an average of zero percent.

Today’s GDP report definitely marks the end of a golden decade for the German economy

Trade conflicts, global uncertainty and the struggling automotive sector have finally brought the German economy down on its knee. In particular, increased uncertainty, rather than direct effects from the trade conflicts, have dented sentiment and hence economic activity. Who remembers that one year ago, the biggest problem for the German economy was supply-side constraints? Last summer the entire economy was close to overheating; now the lack of demand has become a pressing issue. Even worse, this transition has taken place without the expected boost to investments. While the slowdown of the industry is not really new, recent developments show that the resilience of the domestic economy to external shocks is crumbling. Profit warnings, first lay-offs, an increase in short-time work schemes, falling consumer confidence and weaker activity in the service sector have sounded the alarm bells.

Let’s be clear: the fact that the German economy is currently in stagnation is not the most disconcerting message after a long period of strong growth. It is the weakening of the domestic economy that is most worrisome.

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