What’s Going On Here?
Germany surprised economists on Thursday by revealing its economy actually grew in the third quarter of this year – 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 on Thursday: fresh data showed Chinese exports, factory output, investment, and consumption growth had slowed by more than expected.
That affects Germany too, since its machinery and car industries, in particular, rely on China as a major customer. But while investors were expecting Germany’s economy to shrink for two quarters in a row – which would be 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 on Thursday: 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, then, 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 on Thursday 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 – or, er, car – last week, which could be good news for Tesla...
