German economic growth slows to five-year low in 2018

German economic growth eased to its slowest rate in five years last year but the country just managed to avoid a technical recession, according to data released by Destatis on Tuesday.

Real gross domestic product rose 1.5% in 2018, slowing down from a 2.2% increase the year before and marking the slowest rate of growth since 2013, but in line with consensus expectations.

It was above the average growth rate of 1.2% for the last 10 years.

Destatis said positive contributions came mainly from domestic demand. Both household final consumption expenditure and government final consumption expenditure, up 1% and 1.1% respectively, were higher than the previous year. However, the growth rates were markedly lower than in the preceding three years.

Germany narrowly avoided a technical recession, with a slight quarterly gain in the fourth quarter of last year following a 0.2% quarter-on-quarter contraction in the third quarter.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "First things first; we have had loads of questions on whether this estimate would tell us something about whether the economy was in recession in Q3 and Q4, or more specifically, whether Germany’s statisticians assume that it was.

"Unfortunately, we can’t really tell, but it was close. 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, but these estimates are very sensitive to rounding.

"For example, 1.5% also is consistent with a q/q rate in Q4 of +0.2%, assuming the working-day adjustment won’t shave off a full 0.1pp. In this case, we just have to wait for the December data, and final revisions, to know for sure. Our best guess is that Germany just about avoided a recession last year."

Andrew Kenningham, chief Europe economist at Capital Economics, said that it's of limited comfort that Germany narrowly avoided a recession last year, as the bigger picture is that the economy is likely to remain weak in 2019.

"The Federal Statistics Office’s estimate that GDP rose by 1.5% last calendar year is in line with our own and the consensus forecasts. However, the main concern is about the sharp slowdown in the second half of last year. After all, we already knew that GDP contracted by 0.2% in Q3, after rising by 0.4% and 0.5% respectively in the first two quarters of the year.

"Assuming that there are no revisions to the estimates for Q1-Q3, the full-year estimate suggests that GDP growth was probably just above zero in Q4: indeed, annual growth of 1.5% would be consistent with Q4 GDP growth of anything between 0.0% and 0.3%. Moreover, the statistics office commented in a press conference this morning that Q4 GDP probably recorded a 'small plus'."