Europe has economic woes of its own beyond Brexit

Ian King, business presenter

Business and City folk who spend much time travelling, when asked about how the rest of Europe looks at the Brexit issue, report two key trends.

The first, understandably enough, is that Europeans cannot stop laughing at the ineptitude of Britain's political class or shaking their heads in disbelief at the way one of the world's most pragmatic and mature democracies has seemingly lost its head.

The second is that mainland Europeans are not following the Brexit negotiations as obsessively as Britons are because they have other priorities.

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Avert your gaze momentarily from the chaos in Westminster towards mainland Europe and it quickly becomes clear why.

While the Conservative Party was doing its best to tear itself apart on Thursday, Germany was waking up to the news that its economy had contracted during July, August and September, the first time this had happened since the first three months of 2015 and representing the weakest performance since the beginning of 2013.

Gross domestic product in Europe's biggest and most important economy contracted by 0.2% during the quarter, worse than most economists had been predicting, representing a contraction of 0.8% on an annualised basis.

That compares with the 0.6% quarter-on-quarter growth the UK recently reported and the annualised growth of 3.5% reported in the quarter by the United States.

At first glance, the contraction appears to confirm the concerns of many investors that Germany is likely to be caught in the crossfire between China and the United States over trade.

Dig a bit deeper, though, and the contraction more reflects bottlenecks in Germany's car-making sector, the backbone of the country's vast exporting machine, as it grappled with new vehicle emissions testing rules.

Volkswagen, Germany's biggest carmaker, was estimated to have around a quarter of a million unsold vehicles parked across Europe at one point earlier this summer.

Not only did the new rules create disruption, they also appear to have caused some consumers to put off replacing their vehicles, with new car sales in Germany during September down 30% on the same month in 2017.

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Another factor was that, after the exceptionally hot summer weather, water levels have fallen to record lows in the River Rhine, a key shipping and freight route for German industry.

Around half of all European shipping enters the river, a major trade artery, at some point and it has had a severe effect on German industry.

The country's largest oil refinery, in Karlsruhe, sits directly on the Rhine and oil barges have struggled to reach cities such as Cologne, Dusseldorf and Koblenz, pushing up the price of heating oil in those cities as shortages appear.

BASF, the German chemicals giant, has a factory in Ludwigshafen that sits on the river and which has had to cut production after low river levels restricted deliveries to and from the plant.

The industrial giant Thyssenkrupp has had to scale back steelmaking at its Duisburg plant because raw materials could not be transported there due to low river levels. And in Cologne, the largest city on the river, containers have been stacked at the port because there is no way of moving them.

The big question is whether this is a one-off contraction, due to exceptional circumstances, or a harbinger of things to come.

Due to the trade war and other factors, including the possibility of a "no deal" Brexit, forecasters fear the latter.

Germany's chambers of industry and commerce have already cut their forecasts for German GDP growth this year from 2.2% to 1.8% while the key ZEW survey, a closely-watched indicator of economic confidence, suggested this week that investors do not expect activity to recover quickly.

Meanwhile, after Thursday's figures, few economists now expect German GDP to grow by even the 1.8% forecast for this year by the German government.

Elsewhere in Europe, there are other storm clouds over the economy.

Italy's populist new government is still on a collision course with Brussels and a potential confrontation with financial markets after setting a budget that will entail borrowing more next year than had originally been targeted.

Valdis Dombrovskis, the vice-president of the European Commission, has told Italian newspapers that Rome was "openly challenging" the budget rules agreed by all eurozone members.

In the eurozone overall, during the third quarter, economic growth fell to just 0.2%, the weakest performance in more than four years, with Italy's economy not growing at all.

Meanwhile, despite this lacklustre growth, the European Central Bank (ECB) is still preparing to withdraw its vast stimulus package.

The ECB's €2.5tn worth of asset purchases, known in the jargon as Quantitative Easing, is credited with having steered the eurozone economy off the rocks and restored it to growth .

But asset purchases have been reduced in size and are due to be phased out altogether by the end of the year while Mario Draghi, the ECB president, has also signalled that next year will see the ECB raise interest rates for the first time since 2011.

Mr Draghi has indicated that the weak growth seen in the third quarter was not yet enough to deter the bank from winding back the stimulus.

He said he saw "no reason" why the eurozone economy should not continue expanding but said the ECB would need to assess whether the weakness seen in the was a one-off or a sign of further problems to come.

So the rest of the EU can be forgiven for having priorities other than Brexit. It has economic issues of its own with which to grapple.