Germany may have avoided recession in Q4 by just 0.1% because the quarter was one day longer than the previous period

Lars Baron/Getty Images
  • Germany’s economy was either flat or shrank by 0.1%, depending on how you count it.
  • Either way, it’s weak.
  • The slowdown in China, the US trade tariffs, and a manufacturing decline are all battering the world’s fourth-largest economy.
  • Italy’s economy sucks, too.

The German economy is so weak that it may have avoided going into recession in Q4 2017 simply because the quarter contained one extra day than the previous period.

Year-on-year, real GDP in Germany rose 1.5% in 2018, down from a 2.2% increase the previous year. But on a sequential quarter-by-quarter basis that would imply that growth in Q4 may have fallen.

“Today’s headline is not adjusted for the fact that 2018 had one more working day than 2017, so we probably have to assume that the fully adjusted growth estimate would have been closer to 1.4% than 1.5%. That suggests GDP was either flat, or fell by 0.1% in Q4,” Pantheon Macroeconomics analyst Claus Vistesen told clients in a note seen by Business Insider.

Here is his estimate of German GDP growth:

German gdpPantheon Macroeconomics

That would put Germany in a “technical” recession – a marginally better position than a full-blown recession. A technical recession suggests a very brief contraction before growth resumes. The generally accepted definition of a recession is two back-to-back quarters of declining GDP.

Germany is the fourth-largest economy on the planet and the largest one in Europe. It is the manufacturing driver of the region. So any weakness is concerning.

And yet according to Bank of America Merrill Lynch analysts Evelyn Herrmann and Gilles Moec, weakness in Germany is widespread. In a note to clients, they cite:

  • A sudden 18% drop in pharmaceutical exports to Ireland (0.5% of GDP).
  • Potential US trade tariffs (0.6% of GDP).
  • Slowdown in Chinese demand (20 basis points of growth in 2017). Even a decline in the value of the Chinese yuan lowers German GDP.
  • Manufacturing output down -1.7% q/q. “That is probably too much for the rest of the economy to compensate,” BofAML said.
  • Weakness in car sales.
  • BASF had to pare back production because hot weather reduced water levels in the Rhine, preventing the company from shipping at full capacity or using as much water as it wanted.

And then there is Italy, one of Germany’s major trade partners. Italy too is probably already into the first quarter of a nontechnical recession, BAML says:

Italy gdpBank of America Merrill Lynch

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