By Tom Fairless 

FRANKFURT -- Germany's economic growth slumped to a six-year low in 2019 as the export powerhouse faced challenges in its flagship car industry, persistently slowing Chinese growth and global trade conflicts, a slowdown that weighs on Europe's outlook.

Germany, Europe's largest economy, is the first major country to report full-year growth figures for 2019 after the World Bank last week estimated that the global economy expanded by just 2.4% last year, the weakest rate since the global financial crisis. The bank also lowered its global growth forecast, pointing to a sluggish recovery in trade and investment.

With gross domestic product growth of 0.6% last year, Germany's economy expanded at its slowest rate since 2013 -- the height of the eurozone's debt crisis -- dragged down by a manufacturing contraction of 3.6%. Despite a resolution to Britain's exit from the European Union and an initial U.S.-China trade deal signed on Wednesday, economists predict Germany's economy will barely grow this year.

Risks in the short and medium term include rising U.S.-EU trade tensions, the absence of a pact on future EU-U.K. trade ties, China's slowing economy and Berlin's reluctance to consider greater spending for fear of debt.

Longer term, Germany's car industry -- central to a manufacturing sector that accounts for about a quarter of the economy -- and the country's sprawling capital goods sector are facing rapid technological change and rising competition. The country's aging population and deteriorating infrastructure are other risks to growth.

"The next decade will be a decade of underperformance, and people may once again start talking about Germany as the sick man of Europe," said Joerg Kraemer, chief economist at Commerzbank in Frankfurt.

Germany's weakness is bad news for Europe, and not just because of its size, accounting for about a fifth of the EU's total gross domestic product. German manufacturers are also tightly integrated in the continent, particularly Central and Eastern Europe, where German-owned plants and suppliers to German companies account for a large share of jobs.

The slump in Germany's auto industry, for instance, has already affected neighboring countries that produce parts or finished vehicles for its leading brands, such as the Czech Republic and Slovakia. Figures released Wednesday by the European Union's statistics agency showed that while German industrial output in November was 4% down on a year earlier, Czech output was down 3.1%, and Slovak output down 4.4%. By contrast, France, whose car industry operates independently of Germany's, output rose 1.2%.

Germany is also the largest export market for Italy, the bloc's weakest large member. In the first 10 months of last year, Italy's exports to the country grew by just 0.2% compared to the same period a year earlier versus Italy's 2.7% increase in total foreign sales of goods. Italy's exports to France, its second largest foreign market, were up 2.2%.

Germany, among the most open economies in the West, remains highly dependent on trade after decades of wage moderation, rising taxation, government belt-tightening and corporate cash hoarding. Exports are worth around 47% of Germany's GDP, roughly four times the share of the U.S., according to data from the World Bank.

For a decade, the nation's engineering and auto firms have surfed a wave of Chinese demand. The flood of consumer goods that came out of China were largely made with German-built machines. China's roads remain dominated by German cars to this day.

Unlike many Western economies that have large trade deficits with China, Germany's trade with China is almost balanced. But China's economy has softened and its companies increasingly compete in the same markets as German firms. Some economists fear Germany could become the conduit for the Chinese slowdown to infect Europe. German exports fell 2.3% on the year in November, hurt by a fall in exports to China.

"As German machine builders we feel that huge uncertainty exists in China," Carl Martin Welcker, president of Germany's Mechanical Engineering Industry Association, said in December.

With Chinese growth unlikely to return to earlier rates, Marco Wagner, an economist at Commerzbank, said growth in Germany "will remain close to zero for now."

For now, German unemployment remains low despite edging up slightly at the end of last year. But many German companies have been laying off staff, raising concerns that the manufacturing slump could start to be felt in the labor market and affect private consumption in the course of the year.

Brose Group, an auto parts producer, said in October it would reduce its German workforce by around 2,000 by late 2022. It blamed the declining auto market, especially in China. Continental AG , a giant auto parts manufacturer, announced plant closures in Germany in November as part of a sweeping restructuring plan.

Germany's Federal Labor Agency said this month that job vacancies were falling and more firms had reduced working hours to preserve jobs.

Germany's car sector is one of the biggest question marks for the country's economy. In 2019, German car production fell to its lowest level in almost a quarter of a century, according to the VDA auto lobby group, while the sector's workforce has shrunk by 1.3% since the start of 2019, according to the Ifo economic think tank. Some 14% of auto companies say they have shortened working hours to avoid layoffs. Weakness in the sector likely trimmed German growth by 0.75 percentage points in 2019, according to Ifo.

While there are signs that demand is stabilizing, experts warn the sector is also facing structural challenges that aren't going away and that it may already be past its zenith in terms of profits and jobs.

Manufacturers such as Volkswagen AG are making considerable investments in a large-scale transition to electric vehicles, but demand for the new technology remains tepid. Even if the gamble pays off, EVs carry lower margins and their manufacturing is less labor intensive than combustion-engine cars, which could have a further impact on jobs.

Germany's economic slowdown, from 1.5% GDP growth in 2018, helped trigger an aggressive response in September from the European Central Bank, which cut interest rates and launched an open-ended bond-buying program to shore up growth. Other major central banks also loosened policy last year, including the Federal Reserve, as global trade growth fell to its lowest level since the 2008-09 financial crisis.

The U.S. Treasury Department this week flagged Germany's economic imbalances. In its foreign-exchange report, which addresses the currency practices and macroeconomic policies of major U.S. trading partners, it urged Berlin to cut taxes and boost domestic investment and consumption.

There is little chance of this happening, at least in the short term. Germany's government has so far rejected international pleas to prop up its economy through debt-financed spending, despite enjoying negative interest rates, meaning that investors pay it to lend it money.

The finance ministry this week reported a larger than expected budget surplus for last year -- its sixth in a row. Together with national social security funds, the nation recorded a total budget surplus worth around 1.5% of GDP last year, said Joerg Kraemer, chief economist at Commerzbank.

German officials argue that the nation's large welfare state means there's no need to increase spending during a downturn. Politicians are also constrained by tough fiscal rules enshrined in the constitution that outlaw budget deficits over the economic cycle. Some German economists say it makes sense for an aging country like Germany to generate a surplus and that it will fade over time.

--Paul Hannon in London contributed to this article.

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

January 15, 2020 14:47 ET (19:47 GMT)