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German economic growth stagnates in Q4 2018, exports likely to recover in 2019

The German economic growth stagnated in the fourth quarter as compared to the prior quarter. The GDP growth came in at 0 percent. However, most of economists had anticipated a small plus of 0.1 percent after the statistical office had indicated a “slight recovery” in mid-January. While investments continued to rise in the fourth quarter, foreign trade apparently disappointed. As the basis for the 2019 forecast has deteriorated, there appears to be downside risks for the current forecast of 1.2 percent, noted Commerzbank in a research report.

Survey-based sentiment indicators and incoming orders have dropped considerably to date. However, there are two special factors that make a plus in the first quarter quite likely. Firstly, after the issues with the new emission tests, German carmakers received considerably more orders in the fourth quarter, which should lead to a rise in production in the first quarter. Secondly, since the start of December, the Rhine has been carrying sufficient water again, so that the chemical industry especially can again be supplied with intermediate products without any issues.

“Together, these two special factors could boost economic growth by up to 0.4 percent in the first quarter”, said Commerzbank.

The sentiment indicators in German industry have dropped until now at a rate comparable to what was seen in earlier recessions. In this respect, nervousness is justified. Nevertheless, domestic demand, which has continued to be strong until recently – unlike in previous economic downturns – argues against a recession.

It is mainly dependent on exports about how things will turn out. The Chinese government’s resolutely expansive economic policy is expected to stabilize the Chinese economy. Then exports to China, whose loss of momentum had added significantly to the current global softness in industry, are expected to grow stronger again, added Commerzbank.

At 11:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 45.945, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at 45.9764 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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