By
N. Peter Kramer
Last week figures on the German industrial production in November 2018 were released. They were down by 1,9%; a rise of 0,3% was expected. A single month statistic can, of course, not be significant. But November was the third month in a row German industrial production had fallen and went down by 4,7% over the year.
A common reaction in July, when the production first fell sharply, was to attribute this to weakness in the German car-manufacturing, with its special problems as the transition from diesel and prolonged difficulties with emission tests.
Now it comes clear, that something more general is happening. November’s fall in car output was not dramatically more than the average fall in other sectors. Moreover, industrial production has also been weak in France, Italy and Spain. This is consistent with the slowdown in China and the associated trade. Germany is hit especially hard because it has a high share of exports in GDP, about 47%; and a particularly high proportion of it goes to China.
It looks like that Germany may well record a technical recession in the second part of last year.
Also, France is a worry. A significant economic slowdown would see unemployment rise. The protests against Macron’s government will not stop, if the President is not meeting seriously with the reasonable requirements of the ‘yellow vests’ and their sympathisers, more than 50% of the population. It makes it also more difficult for him to force through his reform programme.
Remarkable is, that so far there is no real sign of an economic slowdown in the US; and China’s statistics show imports from Europe are slowing but still growing. However, across the Eurozone we see a weakening in the rate of increase of consumer spending. This surely cannot be blamed upon the slowdown in China.
Some economists are telling us, that the right question to ask is not why the Eurozone economy is slowing is 2018, but rather why it managed to achieve reasonable growth since 2014 and especially in 2017, a top year. Their theory is, that the strong growth in those years was made possible by a low starting point and a mixture of a weak euro, major reductions in interest rates (all the way down to 0,4%!), quantitative easing by the ECB, the end of fiscal contraction in some countries and the beneficial effect of lower oil prices.
It could be, according to the here for mentioned economists, that all what is happening now in the Eurozone economies is simply the fading of these effects. The tensions over global trade, especially between China and the US, have also not helped. Neither the Brexit chaos is doing.
How long will the current slowdown prove to be? Anyhow, it would be bad for moderate political parties if it continues. The EP elections in May will offer a strong opportunity for populist and EU-critical parties to win votes in the centre. If these parties can argue that the political establishment has failed to bring growth and to reduce inequality, many voters are ready to reject the status quo.
