German business steps up calls for Berlin action as economy stalls

Berlin (dpa) – The German economy stalled as 2019 came to an end prompting the nation’s business to step up calls for government action to underpin corporate investment and cut taxes.

Europe’s biggest economy posted a worse-than-forecast zero growth in the fourth quarter compared with the three months ended September amid a slump in exports along with a drop in consumer and government spending, the Federal Statistics Office (Destatis) said on Friday.

Analysts had expected Friday’s data to show the nation’s gross domestic product (GDP) expanding by a meagre 0.1 per cent after it grew by an upwardly revised 0.2 per cent in the third quarter.

“The final consumption expenditure of both households and government slowed down markedly” in the fourth quarter, Destatis said in a statement with the economy slowing as the year unfolded. First-quarter GDP came in at 0.5 per cent.

“The development of foreign trade (also) slowed the economic activity in the fourth quarter,” the statistics office said. Imports, however, increased.

Fourth-quarter GDP grew by 0.4 per cent compared with the same period last year, Destatis said.

Friday’s GDP data followed the publication last week of a batch of figures including factory orders, production and trade that have highlighted the fragile state of the nation’s key manufacturing sector. December retail sales also fell more than forecast.

The downbeat end to 2019 will also likely raise fresh concerns about Germany’s economic prospects for the coming year with the US-China trade conflict still not finally resolved and Europe facing up to tough trade talks with Britain.

“Discussions on the German economy will again be dominated by one single letter: the ‘r’,” said ING Bank economist Carsten Brzeski, adding that stagnation and a technical recession are the key risks facing the nation.

The German car industry has also stumbled into a slump as it battles to adapt to new environmental challenges.

Berlin needs to face its economic policy homework with “courage”, said German Chamber of Industry and Commerce (DIHK) managing director Martin Wansleben.

“Businesses urgently need signals of relief at home: accelerated planning for investment projects and tax cuts should be placed at the top of the federal government’s agenda,” said Wansleben.

Holger Bingmann, president of the Federation of German Wholesale, Foreign Trade and Services (BGA), echoed Wansleben’s comments.

“It’s true that more investment is needed in modernisation and competitiveness in Germany,” said Bingmann.

“First and foremost this includes improving the economic conditions for all companies, such as, adjustments in Germany’s corporate tax rates,” said the BGA president.

In addition, looming large over the economic horizon is the threat posed by the spread of the deadly coronavirus, which has already rattled global stock markets.

German business confidence posted a surprise drop in January, sliding from a reading of 96.3 in December to 95.9 last month, according to a closely watched survey released by the Munich-based Ifo economic institute.

“Sentiment among German managers is somewhat diminished at the start of the year,” said Ifo President Clemens Fuest said releasing the report.

Germany’s downbeat economic mood has also emerged against the threat of a political vacuum opening up in Berlin following this week’s shock resignation of Chancellor Angela Merkel’s hand-picked successor, Defence Minister Annegret Kramp-Karrenbauer.

The German economy posted its 10th year of growth last year.

But at 0.6 per cent, the nation’s GDP expanded at its slowest pace in six years in 2019, according to Destatis data released last month. It was also sharply down on the 1.5-per-cent growth rate it posted in 2018.

Underscoring how the German economy slowed as last year drew to a close, monthly production slumped by 3.5 per cent in December to result in a 1.6-per-cent contraction in the final quarter.

Industry orders were also down in December, while both imports and exports shrunk during the month.