GDP for the three months ended June contracted 0.1% compared to the previous quarter, in line with analyst expectations. That's down from 0.4% growth in the first three months of the year.
"Today's GDP report definitely marks the end of a golden decade for the German economy," said Carsten Brzeski, chief economist in Germany at the Dutch bank ING.
The world's fourth largest economy, and Europe's biggest, has been hit by what analysts have described as a "perfect storm" of negative factors.
Germany relies heavily on exporters that sell a large amount of goods to China and the United States, which are locked in a bitter trade dispute. Weak global auto sales have also hit the country's carmakers, and fears of a disorderly Brexit remain a drag.
A challenging backdrop
The German economy has helped support growth in Europe following the global financial crisis.
But industrial output for June dropped over 5% compared to the previous year. And the ZEW indicator of economic sentiment for August plunged sharply, hitting its lowest level since December 2011.
Brzeski said the uncertain climate was a top negative factor. "Increased uncertainty, rather than direct effects from the trade conflicts, have dented sentiment and hence economic activity," he said.
Another core issue is the global decline in demand for autos — especially in China, where new car sales have dropped 13 months in a row. That's a huge problem for German carmakers such as BMW(BAMXF), Daimler(DDAIF) and Volkswagen(VLKAF), which have come to depend on the world's largest market for vehicles.
It's particularly damaging at a moment when Germany's automakers have to make big investments to build cleaner cars, said Oliver Rakau, chief German economist at Oxford Economics.
Throw Brexit into the mix, and the outlook for Germany's economy looks grim. Even so, Rakau said he expects a return to "modest" growth in the current quarter, helped by "resilient" domestic demand.
"The main question really is how exports and industry are going to fare," he said.
What happens next
The weak data bolsters the case for the German government to spend more to stimulate the economy next year, Rakau said. But that's far from a sure bet in a country that's notoriously wary about borrowing.
The government could face more pressure to intervene if the trade war between the United States and China drags on.
The Trump administration said Monday it would delay tariffs on some consumer goods exported from China, including cell phones, toys and video game consoles. But both sides look no closer to striking a deal that would eliminate existing tariffs. A fresh round of taxes on Chinese exports is still set to go into effect in September.
Germany's contracting economy also bolsters the case for the European Central Bank to take action when it meets in September.
Economists predict that the central bank will move to cut interest rates, which are already at historic lows. The ECB is also expected to signal it will restart a bond buying program designed to spur economic growth.
BERLIN (Reuters) - A slump in exports sent Germany’s economy into reverse in the second quarter, data showed, as its manufacturers bore the brunt of a global slowdown amplified by tariff conflicts and uncertainty over Brexit.
FILE PHOTO: Volkswagen export cars are seen in the port of Emden, beside the VW plant, Germany March 9, 2018. REUTERS/Fabian Bimmer/File Photo
Gross domestic product (GDP) fell 0.1% quarter-on-quarter, in line with a Reuters poll of analysts, as several observers raised prospects of another contraction in the third quarter, and the industrial sector suggested the government should ditch its balanced budget and kick-start growth via fiscal stimulus.
On a calendar-adjusted basis, the annual growth rate in Europe’s largest economy slowed to 0.4% in the second quarter from 0.9% in the first, Wednesday’s Federal Statistics Office data showed. For 2019 overall, Berlin expects growth of just 0.5%.
“The bottom line is that the German economy is teetering on the edge of recession,” Andrew Kenningham from Capital Economics said, noting that exporters were facing an even bigger potential hit if a threatened no-deal exit from the EU by Britain actually materialized on Oct. 31.
Many economists define a recession as two consecutive quarterly contractions.
Despite Wednesday’s headline quarterly figure matching expectations, markets also took fright, with the yield on Germany’s benchmark 10-year government bond hitting a record low of -0.624%.
The global slowdown has impacted growth across western Europe, but Germany’s traditionally export-reliant economy has been particularly vulnerable.
The statistics office said that net trade slowed economic activity as exports recorded a stronger quarter-on-quarter decrease than imports.
Construction was also a drag, after the sector pushed up overall growth in the first three months due to an unusually mild winter.
“Today’s GDP report definitely marks the end of a golden decade for the German economy,” Cars ten Brzeski from ING said.
“It was a decade of strong growth on the back of earlier structural reforms, fiscal stimulus, localization at its peak and steroids provided by the ECB in the form of low-interest rates and a relatively weak euro.”
DOMESTIC SAFETY NET?
Domestic demand has become an important growth driver for Germany in recent years as consumers benefit from record-high employment, inflation-busting pay hikes and low borrowing costs.
Positive contributions came from that source in the second quarter, as household consumption, government expenditure and gross fixed capital formation increased on the quarter, the statistics office said.
But analysts suggested the positive impact of those factors was waning.
“For a year now, the German economy has been only crawling forward,” UniCredit analyst Andreas Rees said, with the many uncertainties facing German exporters presaging more pain in the rest of the year.
“Besides Brexit, this is above all the U.S.-Sino trade dispute and possible U.S. tariffs on European cars,” Rees said.
ING’s Brzeski said that, with trade conflicts, global uncertainty and the struggling automotive sector having “finally brought the German economy to its knees,” a national debate about fiscal stimulus would get more heated.
In an usual move, the powerful BDI industry association joined the growing chorus of voices demanding that the German government ditch its balanced budget rule.
“In contrast to the debt brake, which is enshrined in the constitution, the black zero (balanced budget) should be called into question in an economically fragile situation,” its managing director Joachim Lang wrote in a guest article in Wednesday’s edition of business daily Handelsblatt.
Slideshow (3 Images)
His comments came after a government official told Reuters last week that Berlin was considering issuing new debt to finance a costly climate protection package.
Chancellor Angela Merkel had on Tuesday poured cold water on domestic and international calls for more fiscal stimulus, saying there was no need “right now” for such a move.
Merkel also pointed to already agreed fiscal steps such as the abolishment of the Soli income tax surcharge for most employees from 2021, a relief worth some 11 billion euros per year that is likely to support domestic demand and with it overall growth.
Reporting by Michael Nienaber; editing by Thomas Seythal and John Stonestreet
U.S. stocks jumped after the Trump administration announced it would be delaying tariffs on certain goods from China beyond the previous September 1 deadline. The news also sent bond yields higher, after the curve flattened the most in more than a decade earlier in the session.
Here were the main moves in the market, as of 10:32 a.m. ET:
U.S. dollar to onshore Chinese yuan rate (CNY=X): +0.0992% to 7.0647
The Office of the U.S. Trade Representative announced Tuesday that products including “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing” would not be hit with a 10% tariff until December 15. Originally, President Donald Trump announced at the start of August that he would be imposing a 10% tariff on $300 billion worth of Chinese imports starting September 1, which would have included many of these items.
“Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent,” the USTR said in a statement.
Shares of Apple (AAPL) led the Dow higher, with the iPhone-maker’s stock up more than 4.5% after the USTR’s statement.
The announcement came after China’s vice premier Liu He spoke with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin over the phone Tuesday night, according to China’s state-run media agency Xinhua. Both sides agreed to conduct another call in two weeks following the discussions, which reportedly focused on the 10% tariffs on $300 billion worth of Chinese goods,
Earlier in the session, falling bond yields and a narrowing spread between the closely watched 10-year and 2-year yields sent contracts on the three major stock indices lower, before the USTR’s announcement sparked a resurgence in equities. Even after the news, shorter-term yields rose more than those on the longer end of the curve.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., August 12, 2019. REUTERS/Eduardo Munoz
Uncertainty about the global outlook had also added to investor jitters, with geopolitical unrest mounting everywhere from Latin America to Asia.
Argentina’s peso plummeted to a record low of about 60 per dollar Monday and remained weaker than 50-per-dollar into Tuesday’s session, after center-right President Mauricio Macri performed worse-than-expected in primary elections over the weekend. The weak performance by the more market-friendly leader sent Argentine equities tumbling, with the Global X MSCI Argentina ETF (ARGT) down more than 24% Monday before paring some losses Tuesday morning.
Meanwhile, the People’s Bank of China fixed its yuan at 7.0326 per dollar Tuesday, marking the fourth straight session with the currency weaker than the psychological 7-per-dollar level. However, this was still stronger than expected by consensus analysts, according to Reuters-compiled estimates. The yuan against the U.S. dollar remains a closely monitored currency pair after the Treasury Department officially designated China a currency manipulator last week, amid an ongoing trade war with the U.S.
In Hong Kong, flights were canceled out of Hong Kong International Airport for a second consecutive day as pro-democracy protesters overtook the global transportation hub. This marked the fifth straight day that activists flooded the airport, with sit-ins starting in one of the busiest commuter centers in the world starting Friday.
Shares of Cathay Pacific (0293.HK), a Hong Kong-based airline, fell 2.5% Tuesday on the Hong Kong Stock Exchange, extending Monday’s declines. The airline said over the weekend that it would cooperate with China’s aviation authority prohibiting staff members who supported the Hong Kong protests from flying to and over mainland China.
Thousands of Hong Kongers have been galvanized to demonstrate against certain Hong Kong policies and police activities. Protests have now stretched into an eleventh week, after initial demonstrations were sparked over a government proposal for an extradition bill that would have allowed criminal suspects to mainland China for trials. While Beijing has condemned the demonstrations and thrown support to Hong Kong’s government to contain protesters, the Chinese government has not initiated military action into Hong Kong, which many observers said would be regarded as a move further undercutting Hong Kong’s semiautonomy.
Consumer prices rose in-line with expectations in July
Meanwhile, new economic data released Tuesday underscored still-muted inflationary pressures in the U.S., with consumer prices edging up at a near-expected pace in July.
The Bureau of Labor Statistics’s headline consumer price index (CPI) rose 0.3% month-over-month in July, as anticipated. Over the last 12 months, consumer prices rose 1.8%, slightly above the 1.7% increase expected and June’s 1.6% increase, driven by a rise in gas and housing prices.
Excluding more volatile food and energy prices, CPI rose 0.3% month-over-month and 2.2% year-over-year in July, slightly ahead of the unchanged 2.1% pace from June expected.
While CPI is not the Federal Reserve’s mostly closely watched measure of inflation, it provides another gauge of consumer price fluctuations. July’s results reinforced the latest personal consumptions expenditures (PCE) price index – the Fed’s preferred inflation measure – which showed tepid inflation for June.
Welcome to Tuesday! Sony's newest product is a giant touchscreen for your car, Microsoft wants more people to subscribe to its Office products and Engadget's corporate sibling, Tumblr, is being sold to the owners of Wordpress.
Just in time to take advantage of significant Android Auto updates and upcoming CarPlay enhancements in iOS 13, Sony has announced an updated version of its in-car receiver, with a floating touchscreen display. The new 8.95-inch WVGA display is both bigger and requires only a single DIN space to install, making it easier to fit to a wider variety of cars. This new assembly allows the display to tilt, as well as adjust its height and depth. In this way, Sony makes it possible to add a big, spacious display to a car that normally wouldn't have one. Compared to the car touchscreen competition, at $600 it's also pretty cheap.
Verizon (Engadget's parent company) is selling the social network to Automattic, the company behind the blogging tool WordPress. It's not disclosing the size of the deal, but Automattic is taking on 200 employees as part of the exchange. Automattic chief Matt Mullenweg told the Wall Street Journal that this is his company's largest acquisition both in terms of cost and sheer staff count. And in case you're wondering: no, Automattic won't reverse the ban on adult content. He saw Tumblr as a companion to WordPress and "just fun."
It's a low-key end to a long, rough chapter in Tumblr's history. Yahoo bought the site in 2013 for a hefty $1.1 billion, but rumors suggest the selling prices is just a fraction of that.
Microsoft is joining the charge to sell its Office products as a subscription service. While users have traditionally purchased the Office suite as a one-off perpetual license, the company is pushing customers toward an annual subscription instead.
Microsoft will no longer sell one-off licenses for Office 2019 as part of its Home Use Program (HUP). The company updated its FAQ page to confirm: "Office Professional Plus 2019 and Office Home and Business 2019 are no longer available as Home Use Program offers."
The HUP is a program aimed at employees in eligible companies, allowing them to buy the same Microsoft products they use at work to use at home. Previously, employees had been offered discounted rates for perpetual licenses. Now, they will have to purchase a subscription with a 30-percent discount, costing $48.99 a year for Office 365 Personal or $69.99 a year for Office 365 Home.
Two years in the making, and it's canceled. The Minecraft team has decided to can its super-duper graphics pack after being unable to maintain a decent level of performance in-game. The pack was going to enable 4K on the Xbox One X and introduce much more sophisticated visual effects, which included atmospheric effects, highlights and more realistic water.
There is hope for a graphics tune-up in the future. Mojang said it was "looking into other ways" to give Minecraft a new look.
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Verizon owns Engadget's parent company, Verizon Media. Rest assured, Verizon has no control over our coverage. Engadget remains editorially independent.
Investing.com - Here are the top five things you need to know in financial markets on Tuesday, August 13:
1. Global stocks jolted by geopolitical tensions
Global equities slid following steep losses in the previous session as heightened geopolitical tensions exacerbated worries over the global growth outlook.
Hong Kong’s led with a 2% dive.
shared in risk-off sentiment with concerns over Italian politics only adding to worries. Italian right-wing League leader Matteo Salvini's drive for early elections hit a road bump as parliamentary leaders failed to decide when the Senate should debate his no-confidence motion.
U.S. futures pointed to a lower open on Wall Street amid lingering concerns that the U.S. and China will not reach a quick resolution to their year-long trade war.
Read more: - Jeffrey Halley
2. Hong Kong, Argentina under geopolitical spotlight
Market focus remained centered on geopolitical tensions in Hong Kong and Argentina and growing signs that trade tensions are hitting global growth.
Hong Kong leader Carrie Lam said Tuesday that further violence involving protests could push the territory “down a path of no return”.
The international airport at the Asian financial hub Tuesday after the cancellation of all flights on Monday, with protesters returning to stand their ground, according to media reports.
Nerves looked to be anything but settled in Argentina where a stunning defeat of President Mauricio Macri in primary elections over the weekend led traders to an of the country’s stocks, currency and bonds, causing some to speculate that Argentina could once again be on the road to default.
3. U.S. bonds on watch for stronger recession signal
U.S. bond markets have rallied amid risk-off sentiment, driving the on the 10-year Treasury note to 2016 lows and the towards record lows.
The spread between the yield on and the 10-year note is already inverted, seen by some as a sign of upcoming recession. Analysts warned however that bond yields may be set to send an even stronger signal of an economic downturn if the 10-year yield breaks below the . That spread hit its lowest level since 2007, hovering at around six basis points.
4. Gold marks new 6-year high, yen hovers near 7-month peak
Traditional safe-haven assets such as gold and the Japanese yen have received a boost in the face of investors’ flight from risk.
continued to power higher, hitting its highest level since Sept. 2013.
The was hovering near , as traders looked ahead to at 8:30 AM ET (12:30 GMT).
5. Oil dips ahead of API inventories
eased ahead of inventory data later in the day. Demand side worries have dominated crude trade as fears of a weakening global economy dim the outlook for oil. In an attempt to support prices, OPEC’s de facto leader Saudi Arabia has been studying further efforts to cut supply.
The American Petroleum Institute's weekly data on will provide further insight into domestic oil supplies.
-- Reuters contributed to this report.
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