Economy

Weaker global economy now also affecting Germany’s Mittelstand

The weakening global economy is now also hitting Germany’s Mittelstand, albeit not as strongly as many a large corporation. For on average the Mittelstand has less of an export focus and is geared more to serving the domestic market. As a rule this spells a slightly more stable course of business. This is not the case, however, for the German mechanical engineering segment, which likewise has a structure that strongly hinges on SMEs. It is already suffering quite considerably from the US-Chinese trade conflict and the weakness of global trade. Indeed, the United States and China are by far the most important destinations for exports by German mechanical engineering companies, which have a very strong international focus. While the German Mittelstand counts numerous world market leaders in what are often very special market niches, international competition has in recent years evidently become far tougher for the broader-based major corporations in…

France: Protests failing to undermine the appetite for reform

One thing that really can be said of France’s President Emmanuel Macron: he is not allowing the street protests to deter him from implementing the announced reforms. With the popularity of the so-called yellow vests increasingly waning, he now faces the risk of disputes with the trade unions. Following the labour market reform introduced in 2017 with simplified dismissal and hiring rules, employers and trade unions were recently presented with details of the planned reform of the unemployment insurance system. The key points of the reform include longer periods of employment before unemployment insurance benefits can be granted and a capping of benefits for higher earners. Previously, unemployment insurance could be claimed if within a period of 28 months applicants had worked in at least 4 of those months. From now on, applicants must have been in employment for at least 6 months. Moreover, in future benefits will be made…

Corporations close to rock bottom

If investors lose confidence and can essentially no longer gauge what a company’s balance sheet is actually worth, companies or indeed sometimes entire sectors are valued with a clearly reduced price-to-book ratio (P/B ratio). This means that they are worth less on the stock exchanges than the equity capital on the balance sheet. Deutsche Bank, for example, is currently quoted at a very low price-to-book ratio of 0.2. That said, it is simply one extremely low value in the European banking sector per se, which as a whole has a very low P/B ratio. This is, of course, not a unique case, and it also does not necessarily mean the end of a company. In the past, almost 30% of German corporates have been through a massive sag in their P/B ratios to <= 0.4 and almost 10% to <= 0.2, and have survived. This trend was to be seen…

German Mittelstand not entirely immune to global economic slowdown

As we can see from the results of the new SME study carried out by DZ BANK and BVR, sentiment among the small and medium-sized enterprises (SMEs) in Germany deteriorated again slightly this spring. In fact, the assessment of the current business situation yielded the second consecutive decline, with the balance of positive and negative answers falling from 79.3 points in our autumn survey to 73.9 points. In a globalised world, even the SMEs that are focused on their domestic market are unable to entirely avoid the impact of increased international risks. Nonetheless, the current business situation is still at a good level in a long-term comparison and the SMEs do not expect the weak phase to persist. Following a marked decline last autumn, they are already somewhat more optimistic again about the future, with the balance of business expectations rising from 21.1 to 24.1 points. It has become increasingly…

Pressure on global politics and the global economy increases

US President Trump continues to escalate things further, most recently directing his ire against Mexico. As is so often the case, while the reasons he gave may seem plausible, higher customs tariffs are not about to solve the migration problem. Moreover, the announcement of higher customs may need to be seen in connection with ever louder calls for impeachment proceedings against him to commence. We can hardly expect that, going forward, the many disputes are likely to all be solved. And even if they were, the global economy is already being damaged. In Euroland, the Italian government now refuses to hold back. Following his success in the European elections, Minister of the Interior Salvini is now quite openly flaunting the fiscal rules and demanding a debt-financed growth programme for Italy. This way he may kick the populist door in the Eurozone wide open and further weaken the principle of stability….

Fragile EMU economic cycle in spring 2019

After two weaker months in March and April, May in the Eurozone was not as bad as many had expected when measured in terms of key economic data. DZ BANK’s Euro-Indicator, which can function as a leading indicator for economic trends, edged up 0.1 percent and has now reached 99.0 points. The prior-year rate also improved slightly last month and is now at -1.8 percent as against -2.0 in April. Above all, the suffering industrial sector has of late been a pleasant surprise. As regards both order receipts and companies’ output expectations after five months of a continual downturn, in May the news was more upbeat again. The output expectations recorded by the surveys made up the ground lost the prior month and are at present at least back at their long-term median. That said, the purchasing managers polled by Markit do not yet discern any improvement in the situation…

1 2 65