German economy shrinks in second quarter

Business | 14 Aug 2019 7:07 pm

The German economy shrank by 0.1 percent in the second quarter from the previous three-month period as global trade conflicts and troubles in the auto industry weighed on Europe's largest economy. 
The state statistics agency Destatis said today that falling exports held back output while demand from consumers and government spending at home supported the economy. In comparison to the same quarter a year ago, the economy grew by 0.4 percent. 
Germany's economy is facing headwinds as its auto industry, a key employer and pillar of growth, faces challenges adjusting to tougher emissions standards in Europe and China and to technological change.
Analyst Carsten Brzeski at ING said trade conflicts and the struggling automotive sector were key reasons why output had fallen. The last time the German economy contracted on a quarterly basis was the third quarter last year when the automotive sector was dealing with bottlenecks getting cars certified under new emissions standards. 
“Increased uncertainty, rather than direct effects from trade conflicts, has dented sentiment and hence economic activity,'' Brzeski wrote in an emailed research note. 
On Tuesday, Chancellor Angela Merkel said she sees “no need for a stimulus package,'' the dpa news agency reported. She pointed instead to plans to remove the so-called solidarity tax, an added income tax aimed at covering costs associated with rebuilding the former East Germany, for most taxpayers. 
The German quarterly decline was a big reason why growth across the wider 19-country eurozone has slowed. Figures also released today confirmed that the eurozone's growth halved in the second quarter of the year to just 0.2 percent. Germany's industrial problems also contributed to the large 1.6 percent monthly fall in the currency bloc's industrial production in June. 

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