Germany

Economics Minister lowers forecast to 0.5 percent – why?

In line with expectations, Economics Minister Peter Altmaier has once again lowered his forecast for economic growth in 2019 – from 1.0 to 0.5 percent. The Federal Government is therefore positioning itself more sceptically in its economic outlook than the economic research institutes in their joint diagnosis published just under two weeks ago. In the report commissioned by the Ministry of Economics, the institutes are forecasting a growth rate of 0.8 percent for the current year in Germany. This clear deviation from the cumulative and specially commissioned expertise of these economic think tanks is somewhat surprising. The reasons behind this may well be political, even though Minister Altmaier explicitly spoke out against a government stimulus package when presenting the forecast. At all events, it is not easy comprehending the economic rationale of the new forecast. The first quarter, that is hugely important for the full-year forecast, is already behind us,…

Wealth creation through less regulation

As the current German Bundesbank study on “Private Households and Their Finances” reveals, average net assets in Germany rose between 2014 and 2017 by EUR 18,300 to EUR 232,800. However, wealth remains unevenly distributed. The unequal distribution of wealth is more pronounced in Germany than it is in the Eurozone as a whole, but is less so than in the United States. It is interesting that above all citizens with real estate and share investments benefited from value increases. In the international comparison though, precisely these asset categories have a weak weighting: German investors are regarded as risk-averse because they avoid equities and tend to favour investments in the form of bank deposits and insurances. Moreover, German citizens more frequently rent their homes rather than own them outright. In this context, both asset categories are especially important for wealth creation: Equities, funds and the corresponding certificates contribute to the broad…

Service sector defies the global economic slowdown – National Industrial Strategy misses the mark

The current slump in order intake, above all from abroad, is not due to the lack of competitivity of German industrial companies. Rather, it is the consequence of German industry being strongly reliant on exports – at a time when the international economic cycle is slowing. In this context, the debate about a “National Industrial Strategy 2030” launched by the German Federal Ministry for Economic Affairs and Energy is all the more important. The “National Industrial Strategy 2030” contains strategic guidelines for overall industrial policy. However, the long-term trend shows that industrial companies in Germany have hitherto succeeded very well in maintaining their international competitive edge without the active influence of government. And they have a comparatively major importance for the German economy as a whole. Sales patterns over the past 15 years also show, however, that some service-sector companies have posted more dynamic growth than manufacturing and that they…

The economy and stock markets appear to be decoupled

The German economy is highly dependent on exports and very successful abroad. This is clearly evident from the country’s current account surplus of 7.4 percent of GDP, with which it by far leads the way globally. The German economy’s vulnerability in the event of external interferences is the other side of the coin. Great Britain is the fourth-largest export market for German companies. As such, it is hardly surprising that the never-ending Brexit debacle is impacting negatively on the mood among German companies. China is the most important trading partner outside Europe. The slowdown in growth there that has been looming for months is now becoming clearly tangible with regard to German companies’ export prospects. ifo export expectations have accordingly plummeted. The German economy could well already be in a mini-recession. The economy as a whole, however, is not. For that the labour market, service sector, and building industry are…

ifo survey: German companies are regaining confidence

Companies’ business expectations for the coming months have improved again somewhat for the first time since August 2018. Estimates about the current situation also picked up after the weaker preceding months. That is a good sign that the domestic economy has bounced back again after the weak second half of 2018. Robust domestic demand in particular is responsible for the shift in sentiment. Business continues to do well in the services sector, supported by a very favourable labour market trend, and the construction sector is still booming. Headwind from the weaker global economy and international risks is currently impacting the manufacturing industry. The Brexit drama is weighing on sentiment, particularly in Europe. Nonetheless, there are also rays of hope: an easing of the tension in the trade talks between the US and China is likely to have had a positive effect. Unlike the PMI index, which fell last week, the…

Downturn in Euroland industry intensifies – purchasing managers remain sceptical

The Euroland economy looks to have only expanded modestly in the first quarter, or so the renewed dampened sentiment among European purchasing managers would suggest. According to IHS Markit’s survey of European purchasing managers, the index for industry saw the strongest decrease in six years. The service sector proved more resilient thanks to robust domestic demand, but here, too, the figure fell. On balance the composite PMI dipped 0.6 points to 51.3 points in March. Industry in Germany and France were in decidedly poor spirits. In France, sentiment among service providers has also deteriorated. In the remainder of the Eurozone, according to IHS Markit, sentiment by contrast brightened slightly. Nevertheless, the survey results are a disappointment. They certainly do not speak in favour of Euroland economic growth picking up clearly in first-quarter 2019. This is in line with our forecast. According to the survey among purchasing managers, German industry is…

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