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Europe's economy slows further and Germany narrowly avoids a recession

Alanna Petroff
Senior Economics Correspondent at Yahoo Finance UK
The International Monetary Fund downgraded its global growth forecast last month, partially due to weakness in Europe. Photo: Mark Renders/Getty Images

It’s exactly as economists had feared.

The European economy failed to maintain its growth momentum last year, with new Eurostat figures showing eurozone expansion slowed to 1.8% in 2018, down from 2.4% in 2017.

It was a similar story for the larger 28-member European Union, which grew by 1.9% last year, down from 2.4% in 2017.

The Thursday data showed European growth waned as the year wore on. Experts have blamed issues including trade war tensions, car manufacturing issues and Brexit uncertainty.

This comes as official data from Germany showed that Europe’s manufacturing powerhouse grew by just 1.4% last year, down from 2.2% in 2017. Ominously, Germany’s economy stalled completely in the final few months of the year and it just narrowly avoided a recession.

Germany’s Federal Statistics Office showed on Thursday the economy posted zero growth in the final quarter of the year after shrinking by 0.2% in the third quarter. These stats compare each quarter with the period directly beforehand, dubbed quarter-on-quarter growth. When you have two consecutive quarters of contraction, that’s considered a recession.

“The German economy escaped a technical recession with the smallest margin possible. The black eye just got blacker. Still, the upside from today’s data is that it can hardly get worse,” said Carsten Brzeski, a leading economist at ING.

The European Commission predicted last week that growth across the European Union would stumble and slow. The Commission blamed a range of “temporary” factors for contributing to the slowdown, including “disruptions in car production, social tensions and fiscal policy uncertainty.”  

Growth in Britain’s economy also slowed considerably at the end of last year, putting a drag on UK gross domestic product (GDP) for the entire 2018. GDP grew by just 1.4% in 2018, the weakest level since 2009, according to the Office for National Statistics (ONS).

The Bank of England predicted last week that Britain’s economy would slow further this year, with growth of just 1.2% in 2019 and 1.5% in 2020. Back in November, the central bank forecast that the economy would grow by 1.7% each year.

The International Monetary Fund (IMF) also recently issued a downgraded outlook for global growth in the coming years. Last month, it predicted growth of 3.5% in 2019 and 3.6% in 2020.

The IMF called out the “negative effects of tariff increases enacted in the United States and China,” and also noted that Germany’s car manufacturers have struggled because of new emissions testing standards. These were just some of the key factors contributing to its recent downgrades.

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