By Nina Adam 

FRANKFURT -- Germany's economy shrank for the first time in 3 1/2 years, as tussles over trade undermined exports and new emissions rules hit car production.

Gross domestic product -- the broadest measure of goods and services produced in an economy -- fell 0.8% in annualized terms in the third quarter, data released Wednesday by the Federal Statistical Office showed.

That marks the first decline in Germany's quarterly GDP since the first three months of 2015, when it fell by an annualized rate of 0.5%, and is well below the 3.5% rate registered in the U.S. during the third quarter.

But economists said that Europe's economic powerhouse isn't in danger of slipping into a recession any time soon.

"There is no reason to become panicky," said Andreas Rees, an economist at UniCredit. "The latest weakness can be explained by a curious coincidence of special circumstances."

Economists said that bottlenecks in the approval of passenger cars in the wake of a new emissions-testing protocol hit automotive production. Exceptionally low Rhine water levels -- the river is a major transportation route for oil and other goods -- depressed activity further.

"In the fourth quarter, the German economy will grow again simply because car manufacturers are likely to gradually ramp up their production again," said Commerzbank economist Ralph Solveen.

Illustrating car makers' recent struggle to shift to new standards, production of vehicles and parts dropped more than 7% in the third quarter from the preceding period, according to the statistics body.

Nevertheless, Germany's export-dependent economy has lost momentum compared with last year, when it registered 2.2% growth for the full year, as an intensifying trade spat between Washington and Beijing damped foreign demand.

"The headwinds in global trade have become rougher," said Stefan Schneider, an economist at Deutsche Bank. That is a concern, because "in Germany, weak exports tend to hit investments with a relatively short time lag," he added.

Germany's statistics body said that the decline in Germany's GDP was largely caused by developments in foreign trade, as exports dropped and imports rose from the second quarter.

Export expectations in the manufacturing sector hit the lowest level in almost two years in October, according to a survey of about 2,300 manufacturers by the Ifo Institute, a supply-side economics think tank.

The German government and economic institutes have already trimmed their outlooks. The government's council of economic experts now expects growth of just 1.6% this year, compared with 2.3% projected previously. For 2019, they predict growth of 1.5%.

"Economic activity has clearly passed its peak," said Mr. Schneider, who expects 1.3% growth in 2019.

Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

November 14, 2018 04:16 ET (09:16 GMT)