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German growth slows sharply in 2019 as trade disputes bite

By Michael Nienaber and Thomas Seythal
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German growth slows sharply in 2019 as trade disputes bite

Construction workers are silhouetted while standing on scaffolding at the construction site of the new headquarters of the ECB during a guided media tour in Frankfurt

By Michael Nienaber and Thomas Seythal

BERLIN (Reuters) - The German economy grew by 0.6% in 2019, the weakest expansion rate since 2013 and a marked cooling from the previous year, as export-dependent manufacturers in Europe's largest economy face increased headwinds from trade disputes and less foreign demand.

The preliminary estimate, released on Wednesday by the Federal Statistics Office, was in line with a Reuters poll of analysts and followed growth in gross domestic product (GDP) of 1.5% in 2018.

"This means that the German economy grew the tenth year in a row. This is the longest growth period since German reunification," statistics official Albert Braakmann said.

Stronger private consumption, higher state spending and booming construction helped support growth in 2019 as struggling manufacturers dragged on activity.

Deka Bank analyst Andreas Scheuerle said the German economy had ended an unusually weak year marked by "bad luck and misery", pointing to tariff disputes and Brexit uncertainty.

"Without the domestic demand -- this means private consumption, state spending and construction -- the German economy would have entered a recession," Scheuerle added.

The office said the budget surplus of the public sector, including federal states, municipalities and social security systems, fell to 49.8 billion euros ($55.4 billion) or 1.5% of GDP after 62.4 billion euros or 1.9% in the previous year.

Chancellor Angela Merkel's ruling coalition is at odds over how to spend the federal government's budget surplus of 13.5 billion euros. Her conservatives are calling for corporate tax cuts while centre-left Finance Minister Olaf Scholz favours more public investment.


TRADE DRAGS

Exports edged up by 0.9% last year after a 2.1% increase in 2018 while imports rose by 1.9% following a 3.6% jump, the office added.

This meant net trade subtracted 0.4 percentage points from German growth whereas domestic activity contributed 1.0 percentage point, leaving an overall growth rate of 0.6%.

German consumers have benefited recently from record-high employment, inflation-busting pay hikes and low borrowing costs. The construction sector has been boosted by a growing population and the European Central Bank's zero interest rate policies.

Germany's export-dependent manufacturers are contending with sluggish foreign demand in light of a slowing world economy and uncertainty linked to tariff disputes and Britain's imminent exit from the European Union.

The automobile sector is also struggling to adjust to stricter emissions regulation and a shift to electric vehicles, with leading car companies and suppliers having announced massive job cuts to cope with the challenge.

Production in manufacturing, which makes up roughly a quarter of Germany's economic output, fell by 3.6%, the data showed. "This decrease was mainly caused by weak production in the automobile industry," the statistics office said.

Year-on-year from January to November, output in the car industry fell by 11.4%, statistics official Stefan Hauf added.

The office said the economy grew slightly in the fourth quarter and that it was carrying only little momentum into 2020.

The German government will update its 2020 growth forecast on Jan. 29 although officials have hinted there will not be any major changes to its autumn forecast. In October, Berlin predicted 1.0% growth for 2020, helped by a higher number of working days. Calendar-adjusted, it expects 0.6% growth.

"The economy will continue to move sideways in 2020," said DIHK managing director Martin Wansleben. He called for both more investment in public infrastructure and corporate tax cuts to give the economy a fiscal push.


(Reporting by Michael Nienaber and Thomas Seythal; Editing by Catherine Evans)