German economy contracts on weak foreign trade, auto bottleneck

The German government had flagged a weaker third quarter last month, citing bottlenecks in the car sector. (AFP)
Updated 14 November 2018
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German economy contracts on weak foreign trade, auto bottleneck

  • The third-quarter dip in GDP was the first time the economy has contracted since the first quarter of 2015
  • Investors do not expect the German economy to recover rapidly from a weak patch in the third quarter

BERLIN: The German economy contracted for the first time since 2015 in the third quarter as global trade disputes swung the traditional export growth engine of Europe’s largest economy into reverse, raising concerns that a near-decade-long expansion is faltering.
Gross domestic product (GDP) in Europe’s biggest economy contracted by 0.2 percent quarter-on-quarter, the Federal Statistics Office said on Wednesday. That compared with a Reuters forecast for a contraction of 0.1 percent.
Compared with the same quarter of the previous year, the economy grew by 1.1 percent from July to September, calendar-adjusted data showed. Analysts polled by Reuters had expected 1.3 percent.
“The slight decline in GDP compared to the previous quarter was mainly due to foreign trade developments: provisional calculations show there were fewer exports but more imports in the third quarter than in the second,” the Office said.
The third-quarter dip in GDP was the first time the economy has contracted since the first quarter of 2015.
The government had flagged a weaker third quarter last month, citing bottlenecks in the car sector stemming from the introduction of new pollution standards known as WLTP as a factor.
“Germany doesn’t have an economic problem but rather an auto sector problem. Due to the sluggish certification of cars, car production had to be noticeably reduced, with collateral damage for other sectors too,” said Andreas Scheuerle at DekaBank.
However, the ZEW research institute said on Tuesday that investors do not expect the German economy to recover rapidly from a weak patch in the third quarter.
Concerns are growing in the German economy, which is in its ninth year of expansion, about the impact of global trade disputes and Britain’s departure from the European Union.
In addition to angst about the impact of US President Donald Trump’s abrasive trade policy, German firms are concerned about instability at home where Chancellor Angela Merkel’s awkward ‘grand coalition’ has come close to collapsing twice.
Carsten Brzeski, an economist at ING, said that even though he expected the auto sector to rebound in the fourth quarter, the GDP figures for the July-September period were a “wake-up call that political stability and strong growth are by no means a given.”
“The poor export performance, despite a weak euro exchange rate, suggests that trade tensions and weaknesses in emerging markets could continue to weigh on Germany’s growth performance,” he said in a research note.
Last month, Germany’s DIHK Chambers of Industry and Commerce cut its 2018 growth forecast to 1.8 percent from 2.2 percent and predicted a slowdown to 1.7 percent next year as the economy faces mounting risks at home and abroad.


Mideast plays key role in Chinese export of armed drones, report says

Updated 17 December 2018
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Mideast plays key role in Chinese export of armed drones, report says

  • China has exploited America’s selective drone export policy to become an increasingly influential player in meeting demand
  • The report is entitled “Armed Drones in the Middle East: Proliferation and Norms in the Region”

BEIRUT: The use of armed drones in the Middle East, driven largely by sales from China, has grown significantly in the past few years with an increasing number of countries and other parties using them in regional conflicts to lethal effects, a new report said Monday.
The report by the Royal United Services Institute, or RUSI, found that more and more Mideast countries have acquired armed drones, either by importing them, such as Jordan, Iraq, Saudi Arabia and the United Arab Emirates, or by building them domestically like Israel, Iran and Turkey.
China has won sales in the Middle East and elsewhere by offering drones — otherwise known as UAVs or unmanned aerial vehicles — at lower prices and without the political conditions attached by the United States.
The report , entitled “Armed Drones in the Middle East: Proliferation and Norms in the Region,” said that by capitalizing on the gap in the market over the past few years, Beijing has supplied armed drones to several countries that are not authorized to purchase them from the US, and at a dramatically cheaper price.
“China, a no-questions-asked exporter of drones, has played and is likely to continue playing a key role as a supplier of armed UAVs to the Middle East,” it said.
The report explored where and how each of the states have used their armed drones and whether they have changed the way these countries approach air power. It found that Iran, the UAE and Turkey all changed the way they employ airpower after they acquired armed drones.
For Turkey and the UAE, armed drones enabled them to conduct strikes in situations where they would not have risked using conventional aircraft, it said. Iran developed armed drones from the outset specifically to enable to project power beyond the reach of its air force, which is hamstrung by obsolete aircraft and sanctions, the report added.
The report said it remains to be seen whether and how the loosening of restrictions on the exportation of armed drones by the Trump administration will alter dynamics in the region.
“Nonetheless, proliferation in armed UAVs in the Middle East is unlikely to stop and could, in fact, even accelerate,” the report said.