What’s Going On Here?

Germany surprised economists by revealing its economy actually grew in the third quarter – but with weak economic data out of China, investors might worry Germany’s still headed for the fire.

What Does This Mean?

• An ongoing effect of the US-China trade war is weaker economic growth than there otherwise would be, as purchases get deferred and companies suffer from reduced demand.
• And that weakness reared its head again: Chinese exports, factory output, investment, and consumption growth had slowed by more than expected.
• That affects Germany since its machinery and car industries rely on China as a major customer. But while investors were expecting Germany’s economy to shrink for two quarters in a row (a technical recession), it actually grew 0.1% larger than the previous quarter, helping the eurozone grow 0.2% too.

Why Should I Care?

For markets: Easy does it.

• Economists struck a cautious note about China’s economic prospects: they think growth is likely to slow down further and that the malaise will spread into the jobs market, hampering consumer spending next year.
• Despite Germany’s positive update, investors may steer clear of both the country and the eurozone at large, since China’s responsible for about a third of the bloc’s economy. They might avoid emerging markets for the same reason – particularly those in Asia, which rely on China buying their exports for their economic growth.

Zooming in: Cracks in Germany’s windshield.

• Carmaker Daimler epitomizes the challenges Germany faces: it announced that the costs of complying with European car emissions regulations and rolling out electric vehicles would hit the next couple of years’ profits.
• Rival BMW revealed it was in the same boat, which could be good news for Tesla…

Content source: Finimize. (2019) Out Of The Frying Pan. Available from: https://www.finimize.com/wp/news/out-of-the-frying-pan/ [Accessed 16 November, 2019]