German economy likely to contract in fourth quarter

The German economy probably shrank in the fourth quarter as export-oriented manufacturing continued to decline, the DIW economic institute said on Friday.

DIW said Europe’s largest economy probably contracted by 0.1 percent in the October-December period.

“We could at most hope for stagnation,” said DIW economist Claus Michelsen.

DIW’s forecast contrasted with a rosy estimate by the Ifo institute, which this week said Europe’s biggest economy probably expanded by 0.2 percent in the fourth quarter.

Manufacturing has been weakening since the start of the year, slowing a 10-year growth cycle. Consumption, state spending and construction have been cushioning the economy.

German manufacturers are coping with trade disputes and Brexit uncertainty. The car industry also faces a costly shift to electric vehicles and stricter emissions rules.

Economy Minister Peter Altamier said that increased clarity on Brexit has helped Germany avoid a recession.

Following Prime Minister Boris Johnson’s election victory, the British parliament will vote on his deal to leave the European Union on Friday. The bill should face little opposition.

Altmaier also told Der Spiegel magazine that he expects trade tensions between the United States and the EU to ease. Donald Trump and the European Commission have imposed tariffs on traded goods and the US president has threatened to impose levies on European cars and car parts.

“I don’t think that the US president has a big interest in having a trade war with Europe one year before the election,” Der Spiegel quoted Altmaier as saying.

DIW said that despite the gloom, German industry was showing signs of optimism.

“German companies are again looking positively into the future, especially when it comes to their international business,” said Michelsen.

The economy narrowly avoided recession in the third quarter, growing by 0.1 percent in the third quarter after contracting by 0.2 percent in the April-June period.