Germany

Ifo survey: German companies’ confidence is dwindling

Sentiment among German businesses deteriorated appreciably across the board at the beginning of the year. In January, the ifo business climate index fell lower than at any point in almost three years. Particularly hard hit are corporations’ business expectations, which have truly slumped. Managers were last similarly sceptical of the future prospects back in 2012. Corporate Germany is evidently gradually losing confidence in a solution in the foreseeable future to the political problems that are increasingly placing a drag on the economy. It is once again industry that is worst off, as it is to an ever greater extent suffering the consequences of the trade dispute between the USA and China. The risk of a hard Brexit has likewise become far more threatening of late. The signs of a downturn are also growing in sectors that rely more heavily on the domestic economy. In the wake of these disappointing figures,…

Dividend yields more attractive than ever before

In recent months, share prices have fallen much more sharply than the expected dividend payments. As a consequence, dividend yields have risen noticeable. The DAX and Euro Stoxx 50 are signalling levels of 3.7% and 4.3% respectively, way above the historical levels. At the same time, yields on bond markets have fallen sharply in recent months. The yield premium of DAX dividends over ten-year German government bonds has thus reached a new record high of 3.1 percentage points. Dividends are therefore attractive – both in absolute and relative terms. All in all, the new year started off calmly for stock markets which are recording clear gains. However, nothing has changed in the difficult underlying conditions: the political uncertainties continue to exist in many different forms and sizes. Only the market – after our stock market barometer had plunged deep into negative territory at the end of the year – is…

Euroland sentiment: Germany slightly improves, France loses further ground

This is not what a good start to 2019 looks like. The sentiment barometers provided in the form of the January purchasing manager indices suggest that there has only been a slight dampening in Euroland as a whole and could overall be best described with the words “cautiously confident”. However, a whole series of tangible risks are currently suppressing any possible flickering of the flame of optimism. There is firstly the concern about a “hard Brexit” happening by mistake, then the new EU exhaust emission regulations, the diesel scandal, which has not yet been forgotten, the ongoing smouldering US trade dispute, and the fact that the global economy can be seen to be cooling down. It is therefore not surprising that sentiment has dimmed further in January. The overall index, the so-called composite purchasing manager index, has slipped 0.4 points and is now running at 50.7 points – sentiment thus…

Bank Lending Survey: European banks’ optimism waning, caution increasing

As the European Central Bank’s latest Bank Lending Survey (BLS) reveals, banks are optimistic as far as lending in the eurozone over the next few months is concerned. The majority of those polled expect increasing demand for both corporate loans and private mortgages. However, there are fewer and fewer optimists. With regard to corporate loans, only a tiny majority believe there will be growing demand. At the same time, banks are becoming more cautious in granting loans. Whereas in autumn 2018 the intention to ease lending guidelines prevailed, there is now a slender majority in both client segments in favour of tightening their credit guidelines in the next six months. German banks too are becoming less optimistic as regards the demand for loans, and caution is increasing. The results thus reflect the darkening mood in the past few months in terms of economic prospects. At the same time, they confirm…

Longer recession could push DAX below 8,000 points

Since 1973 there have been five economic recessions in Germany: 1974/75, 1981/82, 1992/93, 2002/03 and 2008/09. We have analysed the extent to which corporate profits of DAX companies fell during these recessionary phases and share prices came under pressure. This makes it possible to approximately conclude the extent to which a recession on the stock market has been priced in today following a DAX price loss of 25% at its peak between January and December 2018. Approximately, because the structure of the German economy has continuously changed since the 1970s. The composition of the DAX has also constantly changed. Today, the export business of DAX companies is far more important than it was decades ago. Nearly 70% of revenues of the 30 largest German companies are generated in the export business – far more than ten or 20 years ago. At the same time, significantly more is being imported, i.e….

German economy 2018: The boom days are over

The economic upswing in Germany is already entering its tenth year, with the strong momentum of previous years no longer continuing in 2018. With an increase of 1.5 percent in real terms, economic output posted the weakest growth rate since 2013, although the result can still be termed generally solid. Data from the Federal Statistical Office also reveals that the economy did not experience the feared „technical recession“ (two negative quarters in a row) in the second half of 2018. Following a decline in economic output of 0.2 percent in Q3, a slight increase seems likely again in Q4. Detailed data is not due to be published until February. Even so, the German economy undoubtedly experienced a dip in growth in the second half of 2018, with particularly industry showing signs of deceleration since the middle of the year. In the automotive industry, the new emission standards and the diesel…

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