Germany

Equities: danger of the „dividend strategy“ myth

Nothing seems to attract investors so much as high dividend yields and their reinvestment. For some years now dividends have become the „new interest income“ among institutional investors. Individual investors have also discovered dividends and have been blogging about everything to do with „dividends as a second source of income“. There has been an explosion in the number of dividend blogs. Moreover, on websites, investors often only buy those stocks which pay the highest dividends. Many investors hardly bother with a fundamental analysis of the companies in question. A broad spread across 50 stocks or more aims to protect from risk. Special stocks (e.g. American master limited partnerships) or stocks which pay a tax-free dividend are often added to portfolios without any previous checks. Much as we welcome the fact that German investors are now also investing more in equities as part of building up a pension pot, shareholders should…

Euro area inflation at 2% – domestic price pressure remains low

The flash estimate for consumer price inflation in the euro area was 2% in November and therefore 0.1 points lower than in the previous month. At 9.1%, energy prices in the basket of consumer goods rose again sharply, albeit not to the same extent as in October, when they climbed by 10.7%. Food products inflation was also somewhat more moderate at a high level, while the increase in services inflation was weaker. Inflation has therefore been above the ECB’s target of “below, but close to, 2%”, for six months now. Nonetheless, domestic inflationary pressure in the EMU remains muted. This is evident from the core rate of inflation, which excludes the more volatile price components of unprocessed food and energy products. It fell from 1.2% to 1.1% in November. Stronger inflationary pressure would require a much stronger and more permanent increase in the core rate, and there is still no…

Ifo survey: Autumnal wind blowing in the face of the German economy

After the dampener in the summer quarter, German economic data has so far not yet shown any signs of recovering in the autumn. The current ifo survey for November posts the third consecutive dip in business sentiment, something that is usually read as confirming a downward trend. The survey levels fell as regards both the assessment of the current business situation and expectations. German companies remain sceptical with a view to the coming months, which is presumably above all due to the various negative international factors. In particular the stuttering Brexit talks and the EU-critical statements by Italy strained economic sentiment in November. However, the prospects could brighten a bit toward the end of the year. If the draft Brexit deal gets approved by the British parliament and the recently somewhat more conciliatory sounds coming out of Rome firm up in the coming weeks, this should boost sentiment in Europe…

Purchasing managers’ indices: slowdown continues, especially in the manufacturing sector

The purchasing managers’ indices in the eurozone continued to decline, as shown by the flash results in November. The PMI Composite index, which aggregates sentiment for the eurozone, fell from 53.1 to 52.4 index points. According to the survey, production growth in the manufacturing industry continued to weaken. The corresponding sub-index fell to its lowest reading in 30 months. The low growth rate is attributable to slower economic momentum worldwide and to growing political and economic uncertainties. Weaker sales figures in the automotive sector are also causing concern among the industry’s purchasing managers. The service sector is more robust, thanks to solid consumer demand, although Markit suggests there are increasing signs of a slowdown. German purchasing managers appeared to be more sceptical in November. Sentiment in the manufacturing industry as well as among service providers deteriorated. The comprehensive purchasing managers’ composite index thus fell from 53.4 to 52.2 index points,…

Why is Industry 4.0 so important for Germany?

Industry 4.0 refers to the entry into the fourth stage of the Industrial Revolution. This stage enables greater production flexibility by networking the entire value-added chain. Digitization, which has in the last decade crept into our everyday lives relatively swiftly, is to be comprehensively used in commerce in Germany and sharpen industry’s long-term competitive edge. By international comparison, German industry is certainly competitive at present. The companies have for some time bid farewell to cheap mass production, where Germany is no longer competitive, and relocated manufacturing to more cost-effective emerging markets. Among other things, Agenda 2010 and the consensus on modest wage increases agreed by the parties at the collective bargaining table in the Noughties kept unit wage costs stable in Germany at least until the end of the financial market crisis, while they rose appreciably in other Western industrialized nations and in China. Most recently, unit wage costs have…

Is industrial development in the major industrialized nations lagging behind services?

After the financial and euro debt crisis, not only the economy in the western industrialized nations has managed to stage a strong recovery. Labour markets are also experiencing considerable relief. In most major industrialized nations, unemployment rates are now lower than they have been for many years. In Germany, the unemployment rate is actually lower than it has ever been. Even if the unemployment decline in other countries is less pronounced than in Germany, a similar trend can be noted in the United States and Japan. The unemployment rate in these major industrialized nations has now also fallen below its pre-crisis level, in Japan even significantly. While labour markets have now fully recovered from the financial crisis, the same cannot be said for some other indicators: for example, capacities of companies in the manufacturing sector in Germany as well as in the United States and Japan are still not being…

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