Going forward, both countries have three elements on the watchlist:

• Households’ saving ratio has increased beyond structural reasons (unemployment and ageing). Cyclical factors such as constrained residential investment and consumption of durable goods in Germany, and policy uncertainty and limited wage growth in France, will weigh on 2019 consumption outlook.
• While trade talks between the US and China are still to experience a happy ending, attention seems to be on Germany’s car exports to the US. We estimate the cost of a 25% tariff increase on imported European cars to the US at EUR 7bn in losses every year for Germany – EUR 190mn for France – and EUR 14 bn for the EU as a whole.
• To calm social tensions in France, and make the pension system more progressive in Germany, fiscal stimulus will be at play. In Germany, the fiscal surplus is expected to decline from +1.7% of GDP in 2018 to about +0.8% this year. In France, the fiscal deficit will increase to -3.2% of GDP in 2019.

All in all, the limited carry-over from 2018 growth (0.0pp for Germany; 0.4pp for France) and realistic expectations for savings patterns, trade and fiscal impulse led to significant revisions to our 2019 GDP growth forecasts: +1.0% for Germany and +1.2% for France, before a timid recovery in 2020: +1.5% in France and +1.4% in Germany.