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The seized engine of the German economy

Gennaro Speranza Econometrica

A weak automotive sector slows the momentum down. Trade wars and Dieselgate among the factors that have affected production and exports
Even a bullet train will slow down at some point. And that is precisely what is happening to Germany. According to data released by Destatis (the German Federal Statistical Office), the GDP grew by only 0.6% in 2019. This is the lowest increase in the last six years, more than halved compared to 2018, when it was 1.5%. The figure is even worse compared to 2017, when the German GDP grew by 2.5%. A wake-up call for Europe’s economic locomotive.
The greatest contribution to this decline comes from a general weakness plaguing the automotive sector, one the backbones of the German economy. According to data from the German industrial federation Vda, as reported by Il Sole 24 Ore, in 2019 there was a significant drop in car exports (-13% compared to 2018). Considering that Germany alone accounts for 6% of the world market, it comes as no surprise then that such a trend would cause great concerns. Even on the production side the scenario is far from flattering. In fact, car production in 2019 fell for the third consecutive year, reaching the lowest level since 1997: 4.7 million units made (-9%). This drop came after a -9.3% recorded in 2018. And even if new registrations on the domestic market have increased by 5% (3.6 million units sold last year), this wasn’t enough to compensate for the lack of exports and the drop in production.
Germany, in short, was betrayed by the very engine of its powerful economy: cars. But what are the causes of this setback that, among other things, could affect the entire economy of the Eurozone and in particular the Italian economy, since Germany is its main foreign market? As economic observers point out, the trade clash currently underway between the United States and China is responsible for the current difficulties experienced by the German economy. These so-called trade wars, in fact, are creating commercial problems in the world’s geopolitical scenario, affecting a significant number of countries, weighing down their industrial production (especially where cars are a crucial industrial pillar). In Germany this tension is particularly felt as China has been its best ally for years. Suffice it to say that in 2018 almost a quarter of all cars sold in China were German (source ING Think). Lately, though, the Chinese car market has slowed down and no longer seems to guarantee a safe outlet for exports made in Germany.

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