The latest German growth figures showed that economic activity in the Eurozone’s largest economy was flat in the final quarter of 2019. The 0% reading on Friday was below the forecast 0.1% reading. This means that German growth rose by just 0.6% over the year as a whole.
German Exports Down
The German economy suffered as a result of a combination of factors over the year to see a dramatic reduction in the German exporting engine. High levels of global uncertainty linked to the US/China trade war as well as the global slowdown meant that the German industrial sector, headlined by German auto-exporters, was notably weaker over the year.
While the data is dismal, Germany did at least avoid falling into contractionary territory over the final quarter of the year. While household and government consumption was down, along with exports, investment growth in construction and fixed assets helped mitigate the downside and avoid a dip into recessionary territory. However, the outlook for Germany is not looking great.
Risks For Germany over Q1 2020
On one hand, many banks and economists are predicting a gradual recovery for Germany this year. However, the outbreak of coronavirus has raised serious concerns about the German economy once again. German exports to China mean that Germany is vulnerable and exposed to the slow-down in China. With a nationwide lock-down underway and new cases and new deaths each day, the virus has caused a sharp drop in activity there and will likely result in a reduced number of German exports to the country. It is still early days for coronavirus and there could still be months before health authorities are able to get the virus under control. As such, the Q1 outlook for Germany seems tilted to the downside.
German Manufacturing On Watch
This week, traders will receive the latest German manufacturing PMI reading. It is expected to see the factory sector fall further into contractionary territory. Such a reading will likely keep pressure on the Euro. The currency has been heavily sold recently. Fears over the economic impact of coronavirus are once again raising questions around potential further easing from the ECB.
The slide in EURUSD last week saw price breaking down to levels not seen since early 2017. With price now sitting at the bottom of the bearish channel, testing 1.0826 support, we could see demand. However, any upside will be viewed as corrective with the outlook remaining bearish. 1.0778 is the next key downside level to watch.