2nd April 2019
Hugues Chevalier, Economist
At the end of 2018, economic growth on the other side of the Rhine suddenly slowed down. Over the year as a whole, the pace of GDP growth has fallen by one percentage point to 1.5% (versus 2.5% in 2017). Several factors are behind this stall.
First, following the introduction of the new European emission standards for “thermal” vehicles, the production of these vehicles plummeted by more than 10%. Indeed, the automobile industry has not succeeded in producing cars that meet these new standards. Secondly, global trade has fallen in recent months penalising the entire export sector. Finally, household consumption also slowed at the end of 2018 due to the acceleration of inflation, which had an impact on purchasing power. However, the concerns mainly are about the manufacturing sector, whose activity fell again in March. Indeed, uncertainties are accumulating, especially in the automotive sector. In addition to the new emission standards, there is now the risk of new customs taxes in the United States.
In the end, the industrial activity in Germany should therefore continue to shrink in the coming weeks, but at a slower pace than in the first quarter of 2019. After the absorption of the air hole in the automotive sector, exports would remain the only “black” point for the business outlook, but sufficient to impact GDP this year in Germany and other European partner countries, such as Switzerland. Unless hazards (Brexit, trade war, etc.), industrial activity should however restart by the end of the year.