Economy

Companies are earning superbly

The end of the Q1 2017 reporting season is upon us and company reports have been very upbeat. In the USA, sales by companies in the S&P 500 climbed 8% with profits outpacing them and soaring 15%. This is the strongest growth since Q3 2011. With one exception (telecom equities), profits rose in all sectors of the US economy – growth has been broad-based, despite the fact that on the year the greenback tended stronger. In Europe, too, the trend in the first quarter of the year was clearly northward: In the Stoxx 600 company sales increased 10%, with profits rocketing by almost 37%. The DAX companies booked sales rises of almost 4%, with profits running faster at 11 %. German corporations saw sales and earnings grow, albeit at less of a speed than for the S&P 500 and Stoxx 600; this can be attributed to the minor relevance of…

Private households in Germany are facing an even greater loss of interest income

One of the severest consequences of the persistent phase of low interest rates is the collapse of interest income on financial investments. According to our latest calculations, German citizens lost income of nearly EUR 436bn over the period 2010 to 2017 compared with what would have been if interest rates had remained at normal levels. Even if one offsets the savings made through favourable rates on loans, net interest losses of almost EUR 250bn remain. Germans will face an even greater loss of interest income in 2017 too. Inflation is also expected to stage a “comeback”. This is likely to lower the average real interest rate for deposits, bonds and insurances to -0.8 percent this year, leading to a loss of more than EUR 37bn in the value of private financial assets. It is time to change tack on monetary policy, not only for this reason, but also because fundamental…

Decline in number of residential construction permits issued in Germany – a healthy development

As the Federal Office of Statistics has announced, the number of residential construction permits in Germany has fallen by 6.6 percent in the first quarter of this year and now stands at 79,200 units. This is the first decline since the first quarter of 2012. Most affected are single-family dwellings. Here, the number of newly issued permits slumped by 15.3 percent. The still high level of construction permits and the bottlenecks in the construction industry continue to point to a slightly rising number of house completions for the time being and to demand for mortgage loans remaining high. Even if the recent fall consolidates into a new trend, there is no reason for panic. A collapse in house building is not to be expected, but rather a cushioned fall from current levels, which are meanwhile high.  

The German economy kicks off the year on a strong footing

The German economy is growing faster again – and is doing so despite the risks on the foreign policy front. Gross domestic product (GDP) rose 0.6 percent on the previous quarter, the strongest increase in a year. Higher investments, rising consumer spending, and more exports sent the economic output northwards between January and March. In Q4 2016 the increase was 0.4 percent and thus considerably smaller. In other words, the German economy defied the uncertainties associated with President Trump taking office and the approaching Brexit. Although they have not yet released any of the details, the statisticians say that domestic and external factors stimulated growth. Especially gratifying in this context: Investments climbed sharply again. “Significantly more” has been committed to both buildings and equipment, e.g. machinery, with low interest rates no doubt playing a role. Previously, equipment investments had fallen for three consecutive quarters despite the well-oiled economic cycle and…

Very good sentiment in the crafts trade, but the sector still faces challenges

Sentiment in the crafts trade is good. According to the German crafts trade federation (ZDH), the year started off very well for the skilled trades sector which employs one eighth of all wage earners in Germany and more than one quarter of young persons in vocational training. In the first quarter 2017, new records were broken in the areas of revenue and employment as well as business conditions and investments. The main contributions to this development came from the building and interior finishes trades that are profiting from the consistently strong demand for housing and real estate in metropolitan areas. However, the encouraging news should not blind us to the many major challenges still facing the German crafts trade. These include successor problems, competition from industry and foreign suppliers as well as mounting demands in connection with technical progress. However, the main source of concern is the growing shortage of…

EMU kicks off 2017 with strong growth

The Eurozone economy has started 2017 on a strong footing. EMU economic growth rose in Q1 2017, so the first estimate reveals, by +0.5 percent on the prior quarter. In other words, the momentum has been maintained compared to Q4 2016. Details of the components of economic growth were not published. Some EMU member states have also released initial figures on the trend for gross domestic product (GDP). Spain recorded an increase of +0.8 percent while Belgium and Austria both achieved robust quarterly growth rates of +0.5 percent. Things advanced slightly slower in France, where the increase was +0.3 percent. Details from France and Austria show that in both cases precisely gross investments in fixed assets have surged. The leading indicators published had already suggested that the EMU would put in a robust performance in the first quarter. Sentiment among the European purchasing managers improved in the first quarter from…

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