German growth sputters: Should Europe brace for trouble?

Drawing showing powerful Germany struggling with weights
German exports are starting to sag despite a positive world trade situation (source: GIS)

  • Germany is suffering from inadequate productivity growth
  • In the longer term, German entrepreneurs will respond by relocating production abroad
  • This scenario will help keep German companies competitive but bodes ill for the European economy

The latest data on Germany’s economic performance is not particularly encouraging. After having grown at an average quarterly rate of some 0.5 percent for the past five years, the country’s gross domestic product declined by 0.2 percent in the third quarter. In truth, this decline was expected, so that the predictions for full-year growth in 2018 are currently confirmed at about 1.7 percent, down from 2.2 percent in 2017.

Growth during the next two years is expected to remain below the 2 percent threshold, and some observers fear it might drop to about 1.5 percent. The slowdown is not dramatic, since this year’s German growth is only slightly below the European Union’s average of some 1.9 percent. Yet, two issues justify concern.

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