Germany miraculously avoided technical recession

The slowdown in the development of the eurozone economy, which began in the first months of 2018 after a very successful previous year, took alarming forms by the end of the year. The Italian economy, for example, showed negative growth for two quarters in a row; and the French economy was sent into recession “yellow vests” — about this in detail broadcast us news live stream. However, economists were most worried about the first European economy — the German one. Locomotive not only in Eurozone but also in the entire European economy in the last quarter of last year, one might say, by a miracle, only thanks to a tenth of a percent, managed to avoid technical recession.

Such behavior for the main European economy is very unusual, because it usually has immunity to shocks in the sphere of trust and credit, which are constantly pursued by other eurozone economies.

However, in the past few months, the slowdown in the German economy has been much stronger than expected, taking into account the behavior of the rest of the European economy. The ECB is confident that the main problems that have been frantic in the German economy since the summer of 2018 should be sought beyond its borders. This, of course, is a tightening of financial policies on a global scale following the rise in US rates. Now, however, the opposite situation is observed across the ocean. To this should be added the deterioration of international trade caused by the problems of the Chinese economy, and of course, the consequences of the American-Chinese trade war.

ECB economists rightly blame external factors for the troubles of the first European economy. Domestic demand in the euro area still does not cause any particular concerns and anxieties. The situation is not bad in the labor market and, as a result, the growth of real incomes of the population and high consumer spending. Everything is relative, of course, in the order and with loans for enterprises and companies. The slowdown in the growth of the eurozone economy for the year almost coincided with forecasts, and a slight discrepancy can be attributed to problems in China.

However, the slowdown in the economic development of the Federal Republic of Germany is much higher than the average for the eurozone, even taking into account the Chinese factor and the fact that, as economists have long noticed, the German economy is much more sensitive than the economies of other European countries to the Chinese economy.

Economists are now trying to figure out why the growth of the German economy is almost a full percentage below what economists predict it should be. Obviously, this is the result of the accumulation of shock phenomena and events in a number of important sectors of the economy. They have nothing to do with macroeconomic fundamental indicators and are short-lived, i.e. should pretty soon turn around 180 degrees automatically.

Renowned economist Greg Fuzeschi of JP Morgan said the sharpest decline in car production in the third quarter of 2018 was due to the slow introduction of inspections of exhaust cleaning systems and the fact that the German car industry would not come to life after loud scandals involving with German auto giants; a sharp decline in the chemical sector in the fourth quarter due to a shortage of water in the Rhine after a dry summer, as well as restrictions on the supply of water to factories and plants. The situation with water, by the way, has already begun to recover in December last year.

Together, these three factors, obviously, and reduced the growth rate of the German economy in the second half of 2018 in terms of the year by 1.4%. Since these reasons are temporary, the pace of development should increase. Economists expect a rebound of the economy of Germany between the first and second quarters of this year. According to forecasts, growth rates will grow by 1.2% over this period, i.e. In the first half of this year, the growth of the German economy in terms of a year will be 2-2.5%.

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