German economy rebounds from stagnation

FRANKFURT • Germany’s economy emerged from stagnation at the beginning of 2019, returning to growth despite a slump in manufacturing that could worsen because of escalating global trade tensions.

The 0.4% expansion signals some strength across the euro-area in the first quarter (1Q) amid a better than expected performance in a number of countries.

But its industry is under pressure and the region is at risk of being sucked into an increasingly tense US-China trade conflict.

Global worries were heightened yesterday, with reports showing the Chinese economy continues to cool despite efforts by the government and the central bank.

Figures pointed to slower growth in industrial output, retail sales and investment at the start of this quarter.

Germany’s 1Q pick-up matched the median forecast of economists. The statistics office said there is a boost from consumer spending, construction and equipment investment, while there are “mixed signals” on trade.

In the euro-area, growth was also 0.4% in the period, twice the pace of the previous three months.

“Germany’s economy performed strongly in the 1Q, withstanding a slowdown in external demand and weakness in its manufacturing sector. And we expect the headwinds to weaken by year-end.

“The euro-area’s largest economy is unlikely to give the European Central Bank (ECB) any justification for additional monetary stimulus,” said euroarea economist David Powell.

Bloomberg Economics also noted that the lift from construction spending may be temporary and economic growth could “decelerate slightly” this quarter.

UniCredit economists shared that view, adding that it’s “not out of the woods yet”.

German bonds rose, pushing 10-year yields close to minus 0.1%, the lowest since 2016.

Europe’s largest economy barely skirted a recession last year after it took a hit from factors including disruption to auto production.

While some of those issues have faded, more pronounced protectionist measures could damp business sentiment in the export-heavy nation.

Thyssenkrupp AG on Tuesday noted a ”weakening macro environment” as it reported a drop in profit.

Growth in Germany is forecast to slow to 0.5% this year from 1.4% in 2018, according to the government.

Euro-area expansion is predicted by economists to ease to 1.2% from 1.9%.

The slowdown, along with weak inflation, has prompted the ECB to delay interest-rate increases.

But solid domestic demand is giving hope to some officials about the second half of the year.

They hold their next policy meeting on June 6, when their updated projections for the economy will determine how favourable they want to make a new round of loans they’re offering banks.

In addition to Germany, 1Q growth in the eurozone got a lift from a surge in Spain, resilience in France and a rebound in Italy.

Employment in the region rose 0.3%, according to a separate release. — Bloomberg