Germany's economy is getting hammered by the rest of the world's problems - Canadanewsmedia
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Germany's economy is getting hammered by the rest of the world's problems

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German football supporters watch the 2010 FIFA World Cup semi final match between Germany and Spain at a live public viewing on a large screen monitor at FIFA Fanmeile on July 7, 2010 in Berlin, Germany.Matthias Kern/Getty Images

    • Trade war fears, ongoing Brexit negotiations, and the crisis surrounding Italy’s budget are all dragging on the German economy.
    • Traditionally strong exports have disappointed in four of last six months. New rules on emissions for automakers aren’t helping.
    • Europe’s largest exporter has also seen trade out of the country fall dramatically. It could get worse.

A US trade war, Brexit, Italy  you name it, Germany’s economy is suffering from it.

Europe’s economic powerhouse is in one of the longest boom phases of the postwar period, but it’s being pounded by a cocktail of international events that ING Economics says is casting doubts on future growth. 

Germany’s Council of Economic Experts also paints a not-so-rosy picture: It expects 1.6% growth for the country this year and only 1.5% in 2019, well below expectations and down from a bumper 2.2% in 2017. Geopolitical issues were at the forefront of the council’s findings.

“The uncertain future of the global economic order and demographic change present the German economy with major challenges,” chairman of the Council of Experts, Christoph M. Schmidt, said in a report published on November 7. “That is why we are faced with important economic policy decisions.”

Trade war fears, ongoing Brexit negotiations, and the continued crisis surrounding Italy’s budget are all dragging on the German economy. That’s not all: “Temporary production-related problems and capacity bottlenecks are dampening the pace of expansion,” the report said.

Europe’s largest exporter has also seen trade out of the country fall dramatically, with exports dropping 0.8% month-on-month in September. Exports could continue to suffer in the event of a no-deal Brexit or new tariffs on autos out of the US as part of US President Donald Trump’s trade war. Export numbers dropped in four of the last six months and business confidence has been waning as investment opportunities weaken on geopolitical uncertainty, ING said.

Automakers are suffering, too

Germany’s malaise dampened the results of auto giants such as BMW. Third-quarter operating profit plunged 27% as the industry faces greater competition in global markets. The Financial Times reported on November 7 that new EU greenhouse-gas emissions targets for automakers — the EU seeks to reduce emissions by 30% — are behind a 0.1% contraction in Germany’s GDP in the third quarter as car companies struggle to adapt. 

In addition, potential Trump tariffs on China are a major issue for Daimler and BMW, which both build SUVs in the US for the Chinese market.

Research from UBS says that economic risks are predominantly external, but warn that deteriorating labor market conditions could have an impact. The country’s aging population could also prove to be problematic going forward unless more immigration and improved working flexibility are encouraged across the German economy, according to the Council of Experts.

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Eurozone economy grows by 0.2pc in third quarter – half the pace of the second quarter

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Ireland led the pack with industrial output rising a whopping 12.9pc Stock photo

Data from the EU’s statistical office showed that the eurozone’s economy grew by 0.2pc in the third quarter, half the pace of the second quarter.

Meanwhile, economic activity in Germany, which accounts for more than fifth of the EU’s output, dropped by 0.2pc.

Capital Economics said in a report on the numbers that it seemed likely that the disruption stemmed from emissions testing on new car production.

The new EU car tests became mandatory for all new models on September 1 and were introduced in the wake of an emissions cheating scandal.

Growth numbers were also dragged down by Italy whose economy flatlined in the quarter. There was no new third quarter figure given for Ireland which grew 2.5pc in the second quarter of the year, by far the fastest pace in the euro area.

In September, seasonally adjusted industrial production fell by 0.3pc in the euro area – a slowdown from 1.1pc growth in August.

Ireland once again led the pack with industrial output rising a whopping 12.9pc from a year earlier.

This year will mark the fifth consecutive year of eurozone growth although the numbers have started to soften since the summer.

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Japan, German Contractions Open Cracks in Global Economy

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  1. Japan, German Contractions Open Cracks in Global Economy  Bloomberg
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Japan's economy shrank in July-September as trade falls

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TOKYO — The Japanese economy shrank at an annualized rate of 1.2 per cent in July-September, as consumer spending, investment and exports fell, according to government data released Wednesday.

Cabinet Office preliminary data showed seasonally adjusted gross domestic product — the total value of a nation’s goods and services — dipped 0.3 per cent in the third quarter from the previous quarter.

Dragging on growth for the world’s third-largest economy was diminished trade, with exports falling 1.8 per cent and imports dropping 1.4 per cent, the data show. Consumer spending and company investments were also down.

The economy grew for the previous April-June quarter, but contracted the quarter before that. That contraction, in the first quarter, ended the longest straight period of expansion for Japan in nearly three decades.

Harumi Taguchi, chief economist at HIS Markit in Tokyo, said natural disasters during the third quarter had weighed on consumer travel and spending, which meant growth could recover if such disasters don’t happen during the year’s final quarter.

The closure of a major airport in the western Kansai area after a typhoon was one of the natural disasters that brought down growth, he said. A major earthquake also hit the northernmost island of Hokkaido during the quarter, causing fatal landslides and widespread blackouts.

Until recently, Japan has been keeping up moderate growth under Prime Minister Shinzo Abe’s “Abenomics” policies based on a deflation-fighting stimulus program of cheap lending.

But other factors are hurting the economy, such as the nation’s continuing labour shortage and slow wage growth.

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Yuri Kageyama is on Twitter at https://twitter.com/yurikageyama

On Instagram at https://www.instagram.com/yurikageyama/?hlen

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