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Germany narrowly escaped a recession in the third quarter, official data showed Wednesday, offering some relief to Europe’s biggest economy as its fortunes falter.
Gross domestic product rose 0.2% in the July-to-September period driven by an increase in government and household spending, following a 0.3% contraction in the three months prior, according to Germany’s Federal Statistical Office (Destatis). Destatis revised down GDP figures for the second quarter from -0.1% previously.
Germany’s economy shrank last year for the first time since the onset of the Covid-19 pandemic. The outlook isn’t much brighter: the International Monetary Fund sees zero economic growth this year, marking the weakest performance among major economies.
A sharp drop in profit at Volkswagen only intensified the bad news on economic growth. The troubles facing the German economy are captured by the crisis at the country’s largest manufacturer, which could close factories in its home country for the first time in its 87-year history and cut thousands of jobs.
Volkswagen said Wednesday that operating profit for the nine months to the end of September fell 21% on the previous year to €12.9 billion ($14 billion), hurt by poor performance at its flagship brand and restructuring costs. Vehicle sales slipped 4% on particularly weak demand in China.
The results “demonstrate the urgent need for action in a volatile environment characterized by intense competition,” chief financial officer Arno Antlitz said on a call with analysts and reporters, warning of “painful” decisions.
“We have not forgotten how to build great cars,” Antlitz continued, but stressed that costs in the automaker’s German operations “are far from being competitive.”
“Things cannot continue as they are now,” he added. The company will resume talks with labor unions and employee representatives Wednesday and discuss “possible plant closures in Germany,” Antlitz said.
Volkswagen’s weak earnings point to worsening conditions in the private sector in Germany. According to a survey published last week by S&P Global and Hamburg Commercial bank, manufacturing and services businesses recorded the steepest drop in employment in nearly four-and-a-half years this month.
Business and consumer confidence are at a low ebb. “The biggest worry is currently the big pessimism in Germany,” said Marcel Fratzcher, president of the German Institute for Economic Research in Berlin.
“This mental depression, this incredible pessimism is maybe the strongest impediment in the short run,” he told CNN.
Volkswagen encapsulates the negativity gripping Germany. The carmaker’s woes will ripple through the entire automotive industry, which is the country’s single largest sector accounting for 5% of GDP and employing almost 800,000 people — about 37% of whom work for Volkswagen, many in well paid jobs.