Economists will be watching closely when Germany's statistics office publishes preliminary GDP data for 2018 (on January 15) and fourth quarter in February.
In the third quarter, German growth fell 0.2 percent from the previous quarter. Technically, a recession is when there is two consecutive quarters of economic contraction. Foreign trade data released on Wednesday this week will also give an indication on how Germany is faring against a backdrop of global trade tensions between the U.S. and China, Brexit and economic uncertainty in the euro zone.
The German government cut its economic growth forecast for 2018 in December with Economy Minister Peter Altmaier predicting growth of 1.5 to 1.6 percent in 2018, down from a previous forecast of 1.8 percent.
"Both the latest hard and soft data coming from the German industrial sector have been so surprisingly weak that they also convey a fundamental message. In our view, there is something brewing, probably triggered by less dynamic global trade," Andreas Rees, chief German economist at UniCredit, said in a note Tuesday.
He agreed that the fourth quarter GDP data is "likely to be far weaker than expected" and that a stagnation in overall economic activity in the fourth quarter of 2018 "cannot be excluded."
Possible triggers for softness in the data could be the ongoing trade tensions, the uncertainty about Brexit, the slowdown in China and the latest stock market turbulence which may acted as an additional dampener on business sentiment. Germany's DAX had its worst year in a decade in 2018 amid persistent market volatility across the globe. The index had fallen 18 percent from the start of 2018 and briefly fell into bear market territory (when stocks see a 20 percent decline or more from a recent high) in December.
Two technical factors could have affected the latest industrial production data, however, including the fact that there were a lower number of available working days in November due to the timing of public holidays.
Secondly, "a strong rebound in car production has still not kicked in according to the latest November data," Rees said, caused by the working-day effect but also by the ongoing problems of switching to a new car emission testing regime.
UniCredit's Rees said that given the rising likelihood of a weak fourth quarter, "the performance in 2019 could also be less dynamic than assumed, even if one pencils in the expected delayed rebound."