In line with our expectations the German economy narrowly avoided a technical recession in Q3 2019 with GDP rising +0.1% q/q following a stronger than initially expected decline of -0.2% in Q2. The GDP expansion was mainly driven by positive impulses from consumption and investment in construction which more than offset a decline in fixed asset investment. While a recession has been avoided, there is hardly a reason to celebrate. In view of the cautious outlook for global trade and the car industry and lingering political uncertainty surrounding trade and Brexit, mini growth rates at best should be expected in the coming quarters. Leading indicators point to a stabilization in industry but certainly not to a v-shaped recovery. As a result, the continuing weakness in industry is still likely to weigh on private consumption – the main pillar of the economy – so that the risk of recession will remain elevated in 2020. In addition, with today's data it has become less likely that economic policy will intervene to support the German economy, whether through fiscal easing to stabilize demand or structural reforms to boost potential growth. For both 2019 and 2020, we stick to our GDP growth forecast of +0.6%.
