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Only a technical recession? It is all about risks!

August 19, 2019
Region:
We see Germany in a technical recession, as we expect another ¼% GDP drop in Q3. Our forecast for 2019 is now 0.3%. Given no indication for a rebound we lowered our 2020 forecast to 0.7%. We acknowledge these revisions do not properly account for the recent accumulation of risks. Given the increasingly fragile state of the global economy, the realization of one or more risks could easily push the economy into a completely different scenario, where growth revisions of a few tenths of a percentage point will not be sufficient. (Also in this issue: German automotive industry, chemical industry, house prices, corporate lending, the view from Berlin, digital politics.) [more]

More documents contained in "Focus Germany"

74 (25-36)
May 5, 2017
25
Growth in global trade almost stagnated at just 1.3% in 2016, and in some months was even negative. During winter, global trade picked up again, rising by around 3% compared to the same period a year earlier. Given the positive sentiment prevailing across the globe, this rebound could well continue. However, this trend is not yet being fully reflected in other hard economic indicators, usually highly correlated with global trade, and sentiment may therefore overstate the actual trend a little. Still, our simple model of world trade, which suggests moderate growth of just over 2% in 2017 and around 3% in 2018 might represent the lower limit of the forecast range. However, compared to previous cycles the upturn could remain weak, not least because of the global trade restrictions that have been progressively ratcheted up since 2008. [more]
April 6, 2017
Region:
26
In international debate public investment is often regarded as a useful lever for promoting higher domestic demand. Despite international criticism and political declarations of intent, public investment in Germany has only increased moderately over the past two years and has remained average, at best, on an international scale. In the coming years, however, public investment is expected to grow significantly. The current investment plans for the federal budget are 40% higher than those adopted in 2013. Public contracts for the construction industry in 2016 were between 15 and 27% above the average of the previous 10 years. The excellent state of the public finances at the various government levels also supports the prospect of increasing investment growth. However, severe capacity shortages in the construction industry are likely to mean that the high demand for investment will not quickly lead to an increase in construction activity. (Further articles: German housing market, Corporate bond boom in Germany, Result of the Saarland election) [more]
March 9, 2017
Region:
27
At face value the pick-up of GDP growth at the end of 2016 (Q4: +0.4% qoq vs. +0.1% prev.) seems to fit with improving sentiment. However, given its composition we would argue that underlying growth was weaker than the headline suggests. We stick to our below consensus GDP forecast for 2017 (1.1%) and only make cosmetic changes in the details. We are raising our inflation forecast slightly overall for 2017, from 1.6% to 1.7%, compared with only 0.5% in 2016. We still expect core inflation to be only slightly above 1% in 2017. If the signs of global price increases are confirmed, then we could in fact see a more pronounced increase in core inflation, particularly if rising prices translate into second-round effects when wage negotiations are conducted in 2018. (Further articles: German industry, German election campaign) [more]
January 30, 2017
Region:
28
2016 GDP growth picked up further relative to the previous two years (1.9% vs. 1.7%). Growth was strongly tilted towards consumption thanks to several tailwinds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment: With several tailwinds fading and a strong workday effect weighing, GDP growth looks set to slow to 1.1% in 2017. Recent sentiment indicators herald some upside risks for the current quarter. However, the 2.3 point drop in the expectations component of the January ifo index seems to corroborate our more cautious stance. In an unexpected turn, SPD party leader Gabriel announced that he would not run against Angela Merkel. Instead Martin Schulz, the former president of the European Parliament, will be the party’s frontrunner. Mr. Schulz’s unexpected nomination is likely to push the SPD’s campaign for the federal election on September 24 but unlikely to derail Merkel. [more]
December 21, 2016
Region:
29
German GDP growth is expected to slow somewhat in 2017 following considerable momentum over the last two years. We note the growth rate will almost half, to 1.1%, in 2017, but around half of this is due to a smaller number of working days. While the economy will likely have to do without a number of special factors that provided a boost to domestic demand in 2016, we believe that the underlying robust domestic economic growth path remains intact. Weak global trade and political uncertainty will dampen exports and investments. The ECB has in all but words indicated that tapering will begin in 2017. European interest rates are likely to remain at very low levels in 2017, at least at the short end. [more]
October 28, 2016
Region:
30
German wage growth slowed in H1 2016 and there is a range of factors that are likely to also put a lid on the pick-up in 2017. The impact of labour shortage is limited by material mismatch between the qualifications of the unemployed and those sought by employers as well as substantial immigration flows. High real wage gains have pushed up unit labour costs and weighed on corporate profitability, which is further undermined by low productivity growth. Cautious wage agreements in 2016 on average stipulate only 2% wage increases in 2017. Despite a 4% increase in the statutory minimum wage, aggregate wages should increase by only around 2 ½%. According to our forecasts, next year could see the growth rate for industrial production in Germany drop to 0.5% in real terms. Regarding output in Germany’s large industrial sectors we do not expect major outliers. Also in this issue: “The View from Berlin. All lights on the debates about personalities and tactical gambits.” [more]
October 4, 2016
Region:
31
The policy of low and negative interest rates has had a limited impact on the returns on household financial assets in Germany to date. The nominal total return has averaged 3.4% over the last four years. Even nominal returns on interest-bearing investments did not slip below 2% until 2015 because a large proportion of longer-dated and mostly higher-coupon investments dampened the effect of evaporating market returns. High and stable revaluation gains have also buttressed total returns over recent years. They have probably been enhanced in no small measure by the ECB’s Quantitative Easing programme. Interest income and revaluation effects are likely to be a greater burden in 2016 and 2017. The income return on other assets is also likely to drop on account of the financial market environment. The scope for further significant revaluation gains is likely to be limited given already very high valuations. In 2017 the real total return could even become negative (again). [more]
September 2, 2016
Region:
32
Against the backdrop of strong Q2 growth and the revision of historic data, we increase our GDP forecast for 2016 to 1.9% (from 1.7%). For 2017 we lower our growth forecast to 1.0% (from 1.3%). Muted wage growth will likely weigh on consumption growth and subdued exports as well as high global uncertainty might negatively impact equipment investments. Further topics in this issue: Fiscal balance, Current account surplus, Retail investors, German industry and View from Berlin. [more]
July 27, 2016
Region:
33
There is a high level of excess demand in the housing market and it has grown in recent years. Demand for credit is also growing at a correspondingly rapid pace. The supply of credit could be boosted by further monetary stimulus. In the medium term, more buoyant lending is likely to increase interest rate risk. However, if lending growth remains low, there will be increased risk of overvaluations and a house price bubble. This is particularly true when little new housing is financed and lending is largely for existing property. Given the high level of excess demand in the housing market and the fact that office buildings are being converted to residential buildings, office space is also likely to be in short supply in the coming years. As a result, rents in the office market can be expected to rise more strongly, and could – for a time – outstrip the rise in rents in the housing market. Since Chancellor Merkel assumed office in 2005 her term has been dominated by crisis management, which often required leadership and moderation of differing interests in Europe. Managing the UK’s departure from the EU will have top priority for the time being. Nonetheless, Merkel is likely to focus her attention on domestic topics as much as on European ones in the upcoming months given the looming federal elections in autumn 2017. Also in this issue: Fewer insolvencies in German industry. [more]
July 4, 2016
Region:
34
The political and economic implications as well as the order of events of the Brexit are currently very hard to predict. We assume that Europe – as usual in recent years – will “muddle-through”. The ECB will not panic, but wait to assess the consequences of the UK’s choice to exit the EU. Due to Brexit we lower our 2017 German GDP forecast to 1.3% from 1.6%. About half of that is due to lower export growth. The other half of the revision results from lower investment in machinery & equipment by German corporates. All told, domestic demand should only feel a marginal impact given that the fundamental drivers – healthy labour market and construction sector – remain intact. Further topics in this issue: German consumers, labour market and Germany in the aftermath of the EU referendum in the UK. [more]
June 3, 2016
Region:
35
We revise down our Q2 GDP growth forecast from 0.3% to 0.1% as we expect material payback for Q1 strength. While we remain optimistic with regards to the labour market, we think that the impetus from low oil prices to real incomes is fading. In addition, the mild winter has allowed construction work to be brought forward, albeit the payback might be limited by the strength of underlying construction demand. Given weak export sentiment, falling investment goods orders and lower capacity utilisation, we think investment in machinery & equipment is going to weigh on Q2 growth. We maintain our 2016 GDP forecast (1.7%), though. Despite spending on refugees, the German national budget generated a surplus of 0.7% of GDP in 2015, the largest since 2000. However, the healthy short and medium-term fiscal outlook only marginally reduces the need for the reform of public finances. [more]
May 12, 2016
Region:
36
CSU leader Seehofer and SPD leader Gabriel have advocated a stabilization of the level of the public pension scheme’s benefits. This would mean to skip one of the past decade’s major social policy reforms that aimed at enhancing the public budgets' fiscal sustainability. Mr. Seehofer has even questioned the complete architecture of Germany’s pension system by also stating that the Riester-Pension had failed. Obviously both party leaders are in search for popular topics for the imminent federal election campaign, given that in 2017 more than one third of the eligible voters will be 60 years old or older. But it is doubtful whether the promotion of pensioners‘ interests will help both leaders to improve their parties’ image. Further topics in this issue: High returns on direct investments in Germany, Global trade growth remains subdued. [more]
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