Since the first quarter of 2018 the GDP of Germany has grown by a mere 1%

This morning has brought what has become pretty much a set piece event as we finally got the full report on economic growth in Germany in 2019.

WIESBADEN – The gross domestic product (GDP) did not continue to rise in the fourth quarter of 2019 compared with the third quarter of 2019 after adjustment for price, seasonal and calendar variations.

Regular readers of my work will have been expecting that although it did create a small stir in itself. This is because many mainstream economists had forecast 0.1% meaning that they had declare the number was below expectations, when only the highest Ivory Tower could have missed what was happening. After all it was only last Friday we looked at the weak production and manufacturing data for December.

Annual Problems

One quarterly GDP number may not tell us much but the present German problem is highlighted if we look back as well.

In a year-on-year comparison, economic growth decelerated towards the end of the year. In the fourth quarter of 2019, the price adjusted GDP rose by 0.3% on the fourth quarter of 2018 (calendar-adjusted: +0.4%). A higher year-on-year increase of 1.1% had been recorded in the third quarter of 2019 (calendar-adjusted: +0.6%).

As you can see the year on year GDP growth rate has fallen to 0.4%. The preceding number had been flattered by the fall in the same period in 2018. Indeed if we look at the pattern for the year we see that even some good news via an upwards revision left us with a weak number.

After a dynamic start in the first quarter (+0.5%) and a decline in the second quarter (-0.2%) there had been a slight recovery in the third quarter of the year (+0.2%). According to the latest calculations based on new statistical information, that recovery was 0.1 percentage points stronger than had been communicated in November 2019.

If we switch to the half year we see growth was only 0.2% which is how the running level of year on year growth is below the average for the year as a whole.

The Federal Statistical Office (Destatis) also reports that the resulting GDP growth was 0.6% for the year 2019 (both price and seasonally adjusted).

Analysing the latest quarter


We can open with something that fits neatly with the trade war theme, and the emphasis is mine.

The development of foreign trade slowed down the economic activity in the fourth quarter. According to provisional calculations, exports were slightly down on the third quarter after price, seasonal and calendar adjustment, while imports of goods and services increased.

There is something of an irony here. This is because the German trade surplus was one of the imbalances in the world economy in the run-up to the credit crunch. So more imports by Germany have been called for which would also help the Euro area economy. Actually if we look back to last week’s trade release this may have been in play for a while now.

Based on provisional data, the Federal Statistical Office (Destatis) also reports that exports were up 0.8% from 2018. Imports rose by 1.4%. In 2018, exports increased by 3.0% and imports by 5.6% compared with the previous year. In 2017, exports were 6.2% and imports 8.0% higher than a year earlier.

Those numbers also show a clear trade growth deceleration and for those who like an idea of scale.

in 2019, Germany exported goods to the value of 1,327.6 billion euros and imported goods to the value of 1,104.1 billion euros.

Domestic Demand

There was something extra in the report which leapt off the page a bit.

 After a very strong third quarter, the final consumption expenditure of both households and government slowed down markedly.

That will change the pattern for the German economy if it should persist and it somewhat contradicts the rhetoric of ECB President Lagarde from earlier this week.

support the resilience of the domestic economy

I did point out at the time that the use of resilience by central bankers is worrying. This is because their meaning of the word frequently turns out to be the opposite of that which can be found in a dictionary.

If we switch to investment then they seem to be adopting the British model of prioritising housing.

Trends diverged for fixed capital formation. While gross fixed capital formation in machinery and equipment was down considerably compared to the third quarter, fixed capital formation in construction and other fixed assets continued to increase.


Yesterday the European Commission released its winter forecasts for the German economy. So let us go back a year and see what they forecast for this one.

Overall, real GDP growth is expected to strengthen to 2.3% in 2018 and remain above 2% in 2019.

In fact the message was let’s party.

Economic sentiment continues to improve across sectors, suggesting continued expansion in the coming quarters. Survey data show expectations of improving orders, higher output and greater demand.

Whereas in fact the punch bowl disappeared as growth faded from view.

Yesterday they told us this.

Overall, real GDP growth is forecast to rebound
somewhat to 1.1% in 2020, helped by a strong
calendar effect (0.4 pps.).

That is pretty optimistic in the circumstances perhaps driven by this, where they disagree with what the German statistics office told us earlier today.

Resilient domestic demand supported growth.
Private consumption increased robustly amid
record high employment and strong wage growth.

All rather Lennon-McCartney

All my troubles seemed so far away,
Now it looks as though they’re here to stay
Oh I believe in yesterday.


From the detailed numbers one can get a small positive spin as GDP increased by 0.03% in the final quarter of 2019. But the catch is that in doing so you note that the 107.19 of the index is below the 107.21 of the first quarter. Care is needed because we are pinpointing below the margin of error but if we look further back we see that the index was 106.18 at the end of the first quarter of 2018.

There are three main perspectives from that of which the obvious is that growth since then has been only very marginally above 1%. So the European Commission forecasts were simply up in the clouds. But we have another problem which is that looking forwards from then the Markit business surveys ( PMIs) were predicting “Boom! Boom! Boom!” in the high 50s as the economy turned down. They later picked up the trend but missed the turning point. Or if you prefer looked backwards rather than forwards at the most crucial time.

Now we await the impact of the Corona Virus in this quarter. Let me leave you with one more issue which is productivity because if yearly output is only rising by 0.4% then we get a broad brush guide by comparing with this.

The economic performance in the fourth quarter of 2019 was achieved by 45.5 million persons in employment, which was an increase of roughly 300,000, or 0.7%, on a year earlier.

The Investing Channel

Problems are mounting for the Bank of England

We find ourselves in a phase which is proving very difficult for the members of the Bank of England Monetary Policy Committee as well as the Governor Mark Carney. This is on two main fronts. The first is that they eased monetary policy into a sustained fall in the UK Pound £ on the foreign exchanges and the other is the related issue of yet another forecasting failure. Associated with this is the promise to ease policy even further in the future in the face of an expected rise in inflation. From the August meeting minutes.

If the incoming data prove broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.

The rhetoric back then was of “further action” which seems to have disappeared.

The issue of central banker pay has also been raised by Bloomberg who told us this.

When It Comes to Central-Banker Salaries, It Pays to Be Belgian

It goes on to tell us this.

The central bank governors of Belgium, Italy and Germany make more than the ECB president’s annual 386,000 euros ($409,400), data compiled by Bloomberg show. Belgium’s Jan Smets took the crown with about 480,000 euros, almost six times as much as bottom-of-the-list Vitas Vasiliauskas of Lithuania.

Later on it seemed to occur to them that some earned more than this and this was added.

Bank of England Governor Mark Carney earns 480,000 pounds ($599,000) plus housing benefits

Housing benefits is an interesting euphemism if you look at the accounts of the Bank of England.

Mr Carney receives, as was announced on his appointment, an annual accommodation allowance of £250,000p.a., to reflect the additional cost of living in London rather than in Ottawa.

As that on its own is more than US Federal Reserve Chair Janet Yellen receives in total you think it might have been noted in more detail. Also a report that points out that the also well paid Thomas Jordan of the Swiss National Bank “gets an annual train pass” might note this for Governor Carney.

with membership of the Career Average section of the Bank Pension Fund or 30% of salary in lieu.

As of February he has accrued already a pension of £20,000 per annum indexed to the Retail Price Index at age 65. Not bad as we wonder why the “not a national statistic” RPI as opposed to the officially targeted CPI is used? As it is the only area where I can think of where Forward Guidance has worked perhaps lessons can be learnt here, or perhaps not.

Crystal Balls

This has been a big issue this week as we see forecasts from the OBR ( remember the first rule of OBR Club) and the Institute for Fiscal Studies or IFS. The IFS does much good work but please also recall its head Paul Johnson was responsible for the botched UK Inflation Review and I still remember him leaving his own public meeting early claiming a diary mix-up. How is the Bank of England Crystal Ball doing? From Kristin Forbes on Wednesday.

In fact, average GDP growth over the quarters of heightened uncertainty directly before and after the UK referendum on EU membership has been stronger than for all of 2015. It has even been above what is generally believed to be the UK’s potential growth rate.

Hang on so it cut interest-rates and introduced more QE because we were doing better? Let us look in more detail and the emphasis is mine.

UK economic performance has been solid. Quarterly economic growth has picked up from 0.4% in Q1, to an average of 0.6% for Q2 and Q3. This is well above the consensus expectation by economic forecasters, as well as the MPC forecast…………. In both Q2 and Q3, actual GDP growth was substantially higher than forecast (by 0.4pp).

Do you like the way that being wrong is apparently okay as long as others were? No mention of places like here which were more sanguine or indeed those of you in the comments section who were also more sanguine. If so many economic forecasters get it wrong are we seeing a tyranny of the majority to coin a phrase?

I have praised Kristin as being the brightest member of the Bank of England but this stating of the obvious falls below such standards.

What have we learned? Measuring uncertainty is hard.

Really? But at least she musters a sense of humour.

There is much uncertainty about uncertainty.

However there is one more tale of woe for Bank of England forecasting.

Most business surveys suggest that some companies are already delaying investment, or expect to do so over the next year.

Let us skip to today’s update ( 2nd estimate) on UK GDP.

Gross fixed capital formation (GFCF), in volume terms, was estimated to have increased by 1.1% to £79.0 billion between Quarter 2 (Apr to June) 2016 and Quarter 3 (July to Sept) 2016.

So far up is the new down again.

Rather breathtaking

Earlier this week the Daily Telegraph reported this.

Economists are too detached from the real world and have failed to learn from the financial crisis, insisting on using mathematical models which do not reflect reality, according to the Bank of England’s chief economist Andy Haldane.

So a man who has only ever had one employer which is the Bank of England and accordingly exists in its Threadneedle Street bubble is telling others about the “real world”? Also as he is in effect as Chief Economist responsible for the (failed) mathematical models of the Bank of England and has unleashed a “sledgehammer” of monetary easing in response to what they have told him how does this work exactly? Even worse his models have so far been wrong (again).

Corporate Bond QE

This was always going to be problematic as the UK £ Corporate Bond market is not well-developed. Still Apple may need the money or perhaps not if we look at its cash pile. Still supporting the German car industry via buying the bonds of BMW and Daimler…..


There is a simple issue here which is that the Bank of England made forecasts and acted on them. But where is the accountability if they go wrong? Of course things might deteriorate in 2017 and one clear area is the rise in inflation I expect. The problem here is that the Bank of England is supposed to be targeting inflation rather than looking through another “temporary” rise that it so disastrously did – think real wages – in 2010 and 2011.

Ladies Coats

This is an area I am looking into and have received some fascinating replies about on the Royal Statistics Society website. Why? Well they have no lining this year I am told ( sometimes with emphasis and detail) and this made me wonder how statisticians apply the quality mechanisms we are told about. If I can summarise in one sentence it is this from Jill Leyland.

We urgently need ONS to pick up and extend the research done in 2011/2012.

Yet we quote and analyse inflation and GDP to 0.1%.