July 2, 2019 / 11:59 AM / 3 months ago

Germany's export-dependent industry feels pain of trade conflicts

BERLIN (Reuters) - Three German industry groups slashed their production forecasts for this year on Tuesday, citing trade conflicts that have plunged Germany’s export-dependent manufacturers into a recession that is hindering growth in Europe’s biggest economy.

FILE PHOTO: Hapag Lloyd containers stacked at the shipping terminal Altenwerder in the harbour of Hamburg, October 14, 2014. REUTERS/Fabian Bimmer

Germany’s export prowess had given it nine successive years of growth. But over-dependence on exports has made it vulnerable to prolonged trade conflicts, which have become a threat to an economy that’s forecast to expand by just 0.5% this year.

The DIHK Chambers of Industry and Commerce more than halved its forecast for export growth forecast this year to 1% from a previous estimate of 2.5%.

“Trade disputes and growing protectionism in many parts of the world are increasingly becoming reality for German companies abroad,” the DIHK said.

It added that growing scepticism about the world economy in many industrialised countries would weaken demand for machines, services and cars made in Germany, where one in three jobs depends on exports.

Echoing this sense of gloom, the VDA carmakers’ association said car sales in Europe would shrink by 1% this year. Sales in China were expected to fall 4% compared with 2018.

The auto industry, which accounts for 840,000 jobs in Germany, is grappling with a diesel emissions scandal that has cost it billions of euros and a switch to electric cars that puts at risk 75,000 jobs.

Carmakers are also facing the challenge of tougher emissions standards and a threat by U.S. President Donald Trump to impose tariffs on cars imported from the European Union.

Trump’s trade war with China is a bigger concern for German exports, which rely on the world’s two largest economies for growth.

The VDMA engineering association on Tuesday said the retaliatory tariffs on imported goods imposed by the United States and China would contribute to a 2% decline in production this year.

Other risks include uncertainties linked to Britain’s planned departure from the European Union, Italy’s confrontation with the EU over its fiscal plans, and rising tensions between Iran and the United States.

“All this negatively influences investments, which would be delayed or cancelled,” VDMA said.

The economy has been relying on domestic demand for growth. A consumption-driven growth cycle, helped by low interest rates, generous pay increases and record-low unemployment, is so far compensating for the weakening exports.

But there are fears that the slowdown in manufacturing could soon spread, increasing the risk of a recession. The Bundesbank has said economic output will fall slightly in the second quarter.

Reporting by Paul Carrel, Michelle Martin and Thomas Escritt; writing by Joseph Nasr; editing by Larry King

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