By Nina Adam in Frankfurt and Paul Hannon in London
Germany's economic growth slowed more than expected in the third quarter, undermined by a chronic weakness in investment spending across Europe that is unlikely to be eased by growing fears of protectionism following Donald Trump's U.S. presidential election victory.
Germany's gross domestic product grew at a quarterly clip of 0.2% in the three months through September, or 0.8% in annualized terms, the Destatis statistics office said. That is the weakest pace in a year and well below the U.S.'s annualized growth rate of 2.9%.
Economic activity in the third quarter was mainly driven by domestic consumption, Destatis said, as spending by households and the government increased from the second quarter. Net trade, however, weighed on GDP growth.
Europe's largest economy is forecast to grow 1.9% this year, according to the German government's Council of Economic Advisers. But business executives and analysts warn that the risks of heightened protectionism in the wake of Mr. Trump's presidency and the U.K.'s pending exit from the European Union could hurt Germany's export prospects in the year ahead.
"Contrary to most of the eurozone, Germany did experience a significant spill-over from the UK confidence shock following the vote to leave the EU," economists at Citi said in a note to clients. "The surprise result of the US election could have a similar delayed effect as Brexit and temporarily weigh on growth around the turn of the year."
Illustrating this concern, the U.S. in 2015 was the top destination for German exports, with the U.K. following in third place, according to Destatis. Germany's bilateral trade surplus with the U.S. in 2015 accounted for about 1.8% of Germany's GDP.
"If Trump goes ahead and erects trade barriers as planned, the damages will be huge," Clemens Fuest, the president the Ifo institute, said last week. He estimated that 1.5 million jobs in Germany depend on trade with the world's largest economy.
Investments in plant and machinery remained weak, as slack global demand and an uneasy mix of political risks and regulatory uncertainties kept many companies on the sidelines.
Spending in this category slipped slightly in the third quarter, following a steep decline in the three months through June, according to Destatis.
"Global investments in machinery and equipment isn't really taking off and this is weighing on German engineering output," said Olaf Wortmann, an economist at VDMA, Europe's largest engineering federation.
Construction investment, however, roseslightly from the previous quarter, partly fueled by strong demand for affordable urban housing.
Germany's slowdown had an impact elsewhere, with Hungary's economy growing by just 0.2% quarter-on-quarter, down from 1% in the three months to June. The main reason for the slowdown was a stagnating automobile industry, which is dominated by German car makers and accounts for about one third of Hungarian manufacturing.
The EU statistics agency later Tuesday is expected to confirm that the eurozone economy expanded by 0.3% in the third quarter from the previous period, according to a poll of economists by The Wall Street Journal.
Margit Feher in Budapest contributed to this article
Write to Nina Adam at email@example.com and Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires
November 15, 2016 03:59 ET (08:59 GMT)
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