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Germany downplays stimulus hopes as economy escapes recession - business live

The skyline in the city center of Munich, Germany.
The skyline in the city center of Munich, Germany. Photograph: Dieter Endlicher/AP


Time for a very quick recap

The escalating crisis in Hong Kong continues to weigh on markets today, after a fourth day of serious protests in the city.

Airline Cathay Pacific and fashion chain Burberry both reported that their trading has been disrupted by the pro-democracy demonstrations. This is likely to continue, as clashes between protesters and riot police intensify.

Looks like Christine Lagarde has been trying to smooth rifts in at the European Central Bank.

The new ECB president has taken her colleagues for an away day to discuss how to improve things, following the disputes over predecessor Mario Draghi’s stimulus moves.

It’s not terribly informal, apart from the men not wearing ties. And honestly, having more women in the portraits than around the table is a terrible look.

Stocks have dipped very slightly at the start of trading in New York.

The Dow, which hit yet another record high last night, dropped by about 0.1%.

Relief that Germany has avoided recession is being countered by concerns that there’s little sign of progress in the US-China trade talks

If Berlin won’t boost government spending, then Germany’s recovery could depend on a pick-up in global growth.

And *that* could rely on the US and China, who are still to resolve their trade dispute.

Jack McIntyre, Portfolio Manager Global Fixed Income at Brandywine Global, explains:

“Since the global economy is currently in a manufacturing recession, and Germany is a manufacturing powerhouse, it is no surprise that the German economy is bearing the brunt of the slowdown. Domestic demand isn’t enough to offset this global drag.

On an overall basis, Europe is a taker of global growth while China and the US are the main contributors. What we see as a more important forecaster of German GDP is the direction of U.S. and Chinese growth. If the German economy is going to do better, China needs to do better first.”

The number of Americans filing new employment claims has risen.

The US initial claims total jumped to 225,000 people last week, up from 211,000 in the previous seven days.

That’s 10,000 more than economists expected, although still low in historic terms.

German finance minister: Crisis? What crisis?

Newsflash: Germany’s finance minister has just dampened hopes of a new stimulus package to support growth.

Olaf Scholz told a conference in Berlin, organised by Bloomberg, that Germany was not in an economic crisis. As such, there is no immediate need for a spending boost, he argued.

Scholz told a Bloomberg conference in Berlin:

“We are cautiously optimistic. We will have bigger growth next year.”

Andreas Steno Larsen of Nordea Markets reckons Scholz is giving a clear signal that Berlin won’t bow to pressure.

Germany is certainly in a better state than Britain in 1979, and PM Jim Callaghan’s famous “Crisis? What Crisis?” Sun front page.

(Callaghan actually said “I don’t think other people in the world would share the view there is mounting chaos”, but that wasn’t such a good headline).


Here’s our news story on the UK retail sales slowdown:

GDP league table

Most advanced economies has now reported growth figures for the last quarter (although we’re still waiting for Canada!).

Germany, despite avoiding recession, is one of the weakest performers in July-September.

Here’s a selection of the latest quarterly growth figures.

  • US: +0.5% quarter-on-quarter
  • Spain: +0.4% q/q
  • The Netherlands: +0.4% q/q
  • UK: +0.3% q/q
  • France: +0.3% q/q
  • Italy: +0.1% q/q
  • Germany: +0.1% q/q
  • Japan: +0.1% q/q

Economist Rupert Seggins has pulled together the year-on-year growth figures:


European Central Bank’s Vice President Luis De Guindos has predicted there’s a “very low” risk of a eurozone recession, now that Germany has returned to growth.

However, he also fears that growth could remain below potential, unless governments step up and do more.

Reuters has the details.

De Guindos made the comments after data showed the euro zone’s largest economy, Germany, narrowly avoided falling into a technical recession of two consecutive quarters of economic shrinkage.

Europe was in a place where growth remained “below potential” De Guindos said at a BNP Paribas banking conference, adding that the ECB needed “to pay close attention” to the situation.

In September, the ECB pushed euro zone interest rates further into negative territory and said it was restarting its mass bond-buying programme having only wound it down at the end of last year.

De Guindos also echoed recent calls for governments to step up their economic support measures and that low bank profitability was the main threat to euro zone financial stability.

Germany avoids recession: What the experts say

Here’s a round-up of reaction to Germany’s economy growing by 0.1% in the last quarter, avoiding the recession which many analysts expected.

Dr. Kerstin Braun, President of Stenn Group.

“We know uncertainty is a killer for the economy. UK growth was the slowest in a decade. Germany has only narrowly avoided a recession, but it’s not out of the woods just yet. Now the effects of uncertainty have become reality. Companies are having to deal with the consequences of the global economic meltdown – margins are squeezed, output is down and balance sheets are weak.

“With fewer than one in five CFOs willing to take on risk, we’ll see slashed budgets for companies going into 2020. People are going to start feeling the impact from fewer jobs and frozen wages as companies remain inhibited by the uncertain economic outlook.”

Ana Andrade, analyst at The Economist Intelligence Unit:

Growth surprised on the upside. The construction sector continues to run above capacity and is lending support to growth.

This doesn’t change our narrative. Underlying growth trend is weak and the economic outlook remains subdued. Germany avoided a technical recession but will continue to pose very low growth rates over the next year. Important trading partners like China, the US, Turkey and Sweden are experiencing an economic slowdown, and high-frequency indicators show the services sector slowing down. Employment prospects are also gloomy.

This data release will deter the German government from engaging in further fiscal stimulus, at least for now. We saw some debate over a more expansive fiscal policy in the last few months but Germany’s view is that unless the economy goes through a recession, a fiscal stimulus package is unnecessary.

Matthew Cady, Investment Strategist at Brooks Macdonald:

“The German economy avoided a technical recession in 3Q, by posting this morning a surprise positive +0.1% 3Q QoQ GDP growth (vs -0.1% expected). At the same time, however, 2Q GDP growth was revised downwards to -0.2% QoQ (from -0.1% QoQ previously). Effectively, it leaves the German economy close in stagnation.

.... That today’s number is better than slightly expected is potentially the worst of both worlds… not strong enough to assuage growth fears in the Eurozone and not weak enough to push Germany into a meaningful fiscal response.

Toyko, including the New National Stadium being built for the 2020 Olympic and Paralympic Games.
Toyko, including the New National Stadium being built for the 2020 Olympic and Paralympic Games. Photograph: Tomohiro Ohsumi/Getty Images

Japan’s economy has also been hit by the US-China trade war and the weakening global economy.

Data released overnight showed that the world’s third-largest economy grew an annualized rate of just 0.2 percent -- or 0.1% during the quarter.

That’s down from 1.8% annualised growth in April to June.


Eurozone growth confirmed at 0.2%

Just in: The eurozone grew by 0.2% in the third quarter of the year, helped by the modest recovery in Germany.

That’s according to the latest GDP report from Eurostat, which confirms last month’s ‘flash estimate’.

This matches the 0.2% growth recorded in the second quarter of 2019, but weaker than the 0.4% seen in Q1.


Just in: UK retail sales were weaker than expected last month.

Retail sales volumes fell by 0.1% during October, the Office for National Statistics says. Economists had expected a rise of 0.2%. Strip out petrol, and volumes were down 0.3%.

Over the last quarter, retail sales were only 0.2% higher, with food sales the only sector that rose. That implying UK consumers have been reluctant to spend on big-ticket items or discretionary goods.

G4S blacklisted over human rights abuses

NEWSFLASH: UK services company G4S has been sensationally blacklisted by Norway’s sovereign wealth fund, for human rights abuses.

In a stinging rebuke, the Norway’s Council of Ethics said the company was contributing to “systematic human rights violations” of migrant workers in Qatar and the United Arab Emirates.

The Council, which monitors investments in Norway’s Government Pension Fund Global (GPFG), says:

In April 8, 2019, the Council on Ethics recommended that G4S PLC (G4S) be excluded from the Government Pension Fund Global (GPFG) because of an unacceptable risk of the company contributing to systematic human rights violations.

The Council’s investigations show that workers have paid recruitment fees to work for the company, and that workers have taken out loans in their home country to be able to pay the fees.

When the workers arrive in the Gulf, they must spend a significant part of their salary to pay off this debt, and therefore have little chance of leaving. Many also received far lower wages than agreed, and in the Emirates, the workers got their passport confiscated. The Council’s investigations also revealed long working days, a lack of overtime payment and examples of harassment.

Here’s the story:

The GPFG has blacklisted companies before, often because they damage the climate or produce tobacco or coal.

Last month, the Guardian reported that hundreds of migrant workers were dying in Qatar each month from heat stress. Many have been toiling to build the infrastructure for the 2022 football World Cup:

Car giant Daimler has highlighted the challenges in Germany’s economy, by announcing major job cuts.

My colleague Jasper Jolly explains:

Mercedes-Benz plans to save €1.65bn (£1.4bn) by cutting more than 1,000 jobs in the latest sign German carmakers are struggling to make big investments in electric car technology.

Carmakers around the world are spending billions on developing battery-powered electric vehicles but at the same time sales of internal combustion engines are slowing in the face of economic weakness and scandals over emissions.

Mercedes-Benz’s premium cars division will bear the bulk of the job cuts, its parent company, Daimler, said on Thursday, with cuts of €1bn from its wage bill expected by 2022. Management and contractors will be particularly affected, while the vans and trucks divisions will together cut €650m in staff and other costs.

Daimler said it would cap investment in property, plant and equipment and in research and development at current levels, with plans in place to reduce investment in the medium term.


pile of 2 cent coins

Germany’s return to (modest) growth may lift some pressure from Angela Merkel’s government to boost spending. But that could be a mistake.

Berlin’s balanced budget policy had been under growing criticism as the economy contracted over the summer, factory output declined and exports fell.

Some economists argued forcefully that Merkel’s administration should abandon the ‘debt brake’ that effectively bans budget deficits outside of a crisis.

With borrowing costs at record lows, surely policymakers should boost investment?

Many financial experts think so. Deutsche Bank has just surveyed nearly 700 of its clients, and found that most of them oppose the debt brake.

Deutsche’s Jim Reid says:

In terms of German fiscal policy only 4% thought Germany should stick to “black zero” type policies and only an additional 15% thought they should wait for a deep recession to deploy fiscal. 81% thought they should be either expanding fiscal now (33%) or be ready to do so over the next 12 month if growth stayed weak but positive (48%).

European stock markets have all fallen this morning, despite Germany’s better-than-expected growth report.

European stock markest
European stock markest Photograph: Refinitiv

Mining stocks and technology firms are among the fallers, following that disappointing data from China overnight.

David Madden of CMC Markets explains:

The Chinese economy continues to cool down as the latest economic reports showed overnight. Fixed asset investment, retail sales and industrial production came in at 5.2%, 7.2% and 4.7% respectively.

All reports registered declines in addition to undershooting economists’ forecasts. Mining stocks are largely lower this morning on the back of the data from China, as the country is a major importer of minerals.

Fresh signs of China slowdown

Germany’s escape from recession is being overshadowed by weak economic data from China.

Fixed asset investment growth has fallen to its lowest level on record, at 5.2%, the National Bureau of Statistics reported. That suggests companies are reluctant to invest.

Industrial production growth only rose by 4.7%, below forecasts, as the trade war with the US bites.

Retail sales growth dropped to a 16-year low too, implying consumers are more cautious.

There are some signs that Germany’s economy could pick up, having effectively stagnated for the last six months, says Lee Hardman of Japanese bank MUFG.

He tells clients:

Continued growth in the service sector has helped to offset more acute weakness in the manufacturing sector.

Recent leading indicators have provided tentative signs of optimism that the German economy is close to the worst point and could begin to pick up gradually in 2020. The latest ZEW survey, trade, factory orders reports have all surprised to the upside. The global manufacturing PMI bottomed in July providing encouragement that the global industrial slowdown is beginning to ease as well

Germany’s car sector is dragging the economy back, warns Deka bank analyst Andreas Scheuerle.

He says (via Reuters):

“The German economy got away with a black eye: the technical recession [is] avoided.”

“Germany’s economy is suffering from enormous global political uncertainty. Germany’s flagship industry, the automobile sector, is not running smoothly anymore.”

Germany’s government isn’t popping the champagne corks, despite avoiding the ignominy of recession this morning.

Economy minister Peter Altmaier has warned that growth is still too low, telling the ARD TV station that:

“We do not have a technical recession, but the growth numbers are still too weak”

ING: Germany is stagnating

Carsten Brzeski, European economist at ING, says Germany’s economy is effectively stagnating -- despite dodging recession this morning.

He points out that German manufacturers, once a powerhouse of the EU, are really struggling:

Recession or not, the German economy has fallen into a de facto stagnation, with quarterly GDP growth averaging a meagre 0.1% QoQ since the third quarter of last year.

In fact, the German economy can still be divided into two worlds: the depressive world and the happy-go-lucky one. In the depressive world, there are very few signs of an imminent bottoming or recovery of the manufacturing sector since the summer of 2018. The sector is facing and will continue to face cyclical challenges, as ongoing trade conflicts, Brexit uncertainty and slower Chinese growth, along with structural challenges, disrupt the automotive industry. In the happy-go-lucky world, private consumption remains solid on the back of low inflation, low interest rates and a still-strong labour market. The construction sector keeps on booming and the government is also inserting some fiscal stimulus.

Brzeski also fears that Germany could struggle next year too.

Looking into 2020, it looks as if either the cyclical factors weighing on German industry will dissipate somewhat, with the entire economy rebounding, or the domestic part of the economy will also slow down. Either way, don’t forget that the structural challenges will not quickly and easily disappear, keeping a clear cap on any German rebound in 2020.


Economists are pleased to see that Europe’s largest economy has dodged recession.

However, Fred Dukrozet of Swiss bank Pictet points out that it was pretty close -- Germany actually only grew by 0.08% in the last three months.

Why Germany avoided recession

Increased spending by German consumers and government bodies helped to drag its economy out of recession, today’s GDP report shows.

Exports have also picked up, despite trade tensions, helping the economy to expand by 0.1%.

However, investment at German factories has fallen.

Statistics body Destatis says:

Compared with the second quarter of 2019, household final consumption expenditure increased, and so did government final consumption expenditure. Exports rose, while imports remained roughly at the level of the previous quarter. Also, gross fixed capital formation in construction was up on the previous quarter.

Gross fixed capital formation in machinery and equipment, however, was lower than in the previous quarter.

Germany dodges recession

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

It’s a particularly Guten Morgen in Germany today. The economy has just avoided recession with a surprise return to growth in July to September.

Germany has defied the doom mongers by expanding its GDP by 0.1% in the third quarter of this year, new data shows.

That means Europe’s largest economy has stopped contracting, after suffering a 0.2% contraction in April-June (that’s just been revised down from a 0.1% fall).

This is welcome news for Europe’s economy, as it battles a global slowdown, Brexit uncertainty, and the spillover effects of the US-China trade war.

Economists had predicted that German GDP would fall again in Q3, by around 0.1%. But it appears that household spending had helped overcome the weakness in German factories.

On an annual basis, Germany’s economy has grown by just 1% in the last year - or just 0.5% on a ‘price and calendar adjusted basis’.

German GDP to Q3 2019
German GDP to Q3 2019 Photograph: Destatis

Detail and reaction to follow....

The agenda

  • 9.30am GMT: UK retail sales for October
  • 10am GMT: Eurozone GDP for Q3 2019
  • 11am GMT: ECB chief economist Philip Lane speaks in Frankfurt
  • 1.30pm GMT: US weekly jobless figures


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