ZCZC
BCN-17
GERMANY-US-AUTOMOBILE-TRADE
Trade conflict already sapping German economy
STUTTGART, Germany, June 23, 2018 (BSS/AFP) – An industrial powerhouse
built on massive exports and a gigantic car industry, Germany is among the
nations most sensitive to mounting trade tensions between the United States
and other major economies.
US President Donald Trump has in recent weeks struck his first tariff
blows at the European Union and China, who both vowed retaliation — risking
a tit-for-tat trade conflict on two fronts that could weigh on the global
economy.
“Germany’s second economic miracle is over,” influential daily Die Welt
wrote this week, comparing the years of steady growth since the financial
crisis to the post-World War II reconstruction period.
Two respected economic think-tanks sharply lowered their growth forecasts,
with Berlin-based DIW cutting its prognosis for this year by half a
percentage point to 1.9 percent, and then again to 1.7 percent for next year.
Munich’s Ifo institute was even more drastic, slashing its forecast to 1.8
percent for 2018 from 2.6 percent previously.
At a company level, Mercedes-Benz maker Daimler was the first among
Germany’s auto industry titans to lower its profit forecasts this week,
prompting business daily Handelsblatt to declare the “end of the party” for
the sector and its 800,000 workers.
High-end competitor BMW says it is following the international situation
“more closely than ever”.
BMW and Daimler are especially vulnerable, as they face both the threat of
US tariffs on their cars and parts shipped from Europe, as well as taxes at
the Chinese border on the vehicles they build at massive plants in America.
Meanwhile, Germany’s powerful chemical industry federation said last month
it is “less optimistic” for this year given the hardening trade rhetoric.
– Stumbling start –
“Clouds are gathering over the German economy,” whose industrial engine
“began sputtering at the start of the year,” said Ifo macroeconomics chief,
Timo Wollmershaeuser.
MORE/HR/0958
ZCZC
BCN-18
GERMANY-US-AUTOMOBILE-TRADE 2 LAST STUTTGART
Growth slowed to 0.3 percent between January and March, half the rate
recorded in the previous quarter.
Initially, there were suggestions that short-term factors — such as a
winter flu outbreak, a calendar packed with public holidays and a wave of
industrial disputes — might have been to blame. But weak economic data in
April put paid to such arguments.
Both industrial production and industrial orders — indicators of future
economic performance — fell, presaging belt-tightening in the months ahead.
“American economic policy is at least partly responsible” for the
slowdown, Wollmershaeuser said.
In purely financial terms, there is little risk to Germany from Trump’s
first move against Europe, tariffs on steel and aluminium imports.
The border duties are expected to knock just 37 million euros ($43
million) off a gross domestic product totalling 3.3 trillion euros.
– Uncertainty bites –
But investments and exports — exactly the elements that powered Germany’s
expansion last year — are already suffering from “heightened uncertainty”,
said DIW economist Ferdinand Fichtner.
Many German companies manufacture capital goods such as machine tools that
are exported all around the world.
That means when foreign companies decide to delay investment in their
plants, German manufacturers’ sales slip.
Present trade fears are only a foretaste of what might happen if the US
makes good on its threat to tax European car imports.
The move would inflict a five-billion-euro blow on the German economy, or
0.16 percent of GDP, Ifo calculated.
If China also levies taxes on imports of US cars, Daimler and BMW — the
two biggest exporters of cars from America — could face plunging sales there
too.
One strong pillar of the German economy is strong domestic demand, buoyed
by unemployment at its lowest levels since the country’s reunification in
1990, rising wages and higher public spending, the economists note.
But there, too, politics could threaten growth.
Attempts by Chancellor Angela Merkel’s conservative Bavarian coalition
partners to force through a tough border policy against refugees threaten to
explode the government she spent months cobbling together after tricky
September elections.
BSS/AFP/HR/1000