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The German Locomotive Ran Out of Steam in 2019

Kenny Fisher

Germany has long been accustomed to being the economic powerhouse in the eurozone, as the bloc’s largest economy is a bellwether as to the economic health of the rest of the eurozone. The year 2019 will be one to forget for Germany, as the country’s growth rate fell to just 0.6%, its lowest gain since 2013. The economy has been steadily slowing – GDP was a healthy 2.5% in 2017, but fell to 1.5% in 2018, as the downturn continued in 2019.

Despite the disappointing growth rate in 2019, the country produced a record surplus of EUR 13.5 billion. This was a result of larger-than-expected tax revenue, as well as a low-interest rate environment, which meant lower expenses to service the country’s debt. The government has been reluctant to increase spending on infrastructure or cut taxes, instead allocating large sums towards asylum resettlement. This has drawn criticism, as immigration has become a sensitive issue.

The German economy has not only slowed down, but has also become less competitive in global rankings. According to a recent report by the World Economic Forum, Germany dropped four places lower, to seventh in the world. Global trade wars bear much of the blame for the weaker German economy. The U.S.-China trade war has dampened global growth, which has reduced the demand for German-made goods. In October, the Trump administration slapped tariffs on some $7.5 billion worth of European Union goods. Trump has also threatened to impose tariffs on European cars and automotive parts, which could have a disastrous effect on the German auto industry.

The New Year has started on a positive note, with the U.S. and China signing the Phase One trade accord. If the German economy is to rebound in 2020, the EU will have to follow suit and improve its trade relationship with the United States.

This article was originally posted on FX Empire

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