Inventory slump hits Germany as economy barely avoids recession

A customer browses trainers inside the Adidas outlet store at the company’s headquarters in Herzogenaurach, Germany. (Bloomberg pic)

FRANKFURT: Europe’s largest economy stagnated at the end of last year as an inventory slump wiped out support from consumption and investment.

The overall result means that Germany just barely avoided a recession in the fourth quarter after the economy shrank in the previous three months.

Consumer spending rose 0.2% in the three months, capital investment was up 0.9% and public spending jumped 1.6%.

Net trade made zero contribution to GDP, according to the statistics office.

Inventories knocked 0.6% off GDP as car-industry disruption related to new emissions testing procedures continued to play out.

The drop relates in part to carmakers shifting stocks from lots after being held up over the summer.

Economic momentum going forward will depend in large part on how willing companies are to continue investing in an uncertain external environment. A closely-watched gauge of business sentiment due later on Friday may offer some clues.

While Germany seems to be overcoming a number of temporary factors that have damped momentum, policymakers are concerned that subdued business expectations may hamper the chances of a rebound.

The slowdown, which has spilt into the wider euro area, has prompted officials to lay the groundwork for a potential monetary-policy response, just months after the European Central Bank halted net bond purchases.

Germany’s Bundesbank, meanwhile, is still striking a positive tone, arguing there are “no signs that the slowdown is morphing into a downturn.’’

That’s despite signs that weakness in manufacturing has persisted into the new year.

Purchasing managers’ indexes published Thursday showed a slump in industry, and investor confidence hasn’t yet seen a meaningful pickup.

A number of public institutions and private-sector banks have revised down their forecasts for German growth this year.

The Ifo Institute’s gauge of business confidence probably deteriorated further in February.

It will be updated at 10am in Frankfurt time.