Chart of The Week: New vehicle standards cause German GDP contraction

The German economy contracted by 0.2% in the third quarter of 2018, the first negative print since 2015. The contraction was largely foreseen (the consensus of economists polled by Reuters had expected a 0.1% contraction). The primary cause appears to be bottlenecks in the auto industry following the introduction of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). However, this is appears to be a predominantly supply-side problem with the fall in new orders data far less pronounced. Whether the German economy rebounds in Q4 will therefore depend upon how soon firms are able to adapt to the new regulatory standard and how quickly they can increase output.

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