Germany’s economic outlook remains clouded by the continued risk of a eurozone break-up scenario,
which would lead to an immediate collapse in fixed investment and hit external demand for German
exports very hard. Indeed, we note that our latest economic growth projections for Germany show that we
do not see a meaningful economic rebalancing process towards higher household consumption (and
away from export-led growth) taking shape in Germany over the medium term. This will prevent a more
rapid rise in final household consumption expenditure, while leaving the economy highly vulnerable to
the very weak growth trajectory for the wider eurozone economy over the coming 10 years.
Headline Industry Data (local currency)
- 2012 per capita food consumption = +2.6%; forecast to 2016 = +15.2%
- 2012 alcoholic drink sales = +0.9%; forecast to 2016 = +4.2%
- 2012 soft drink sales = +2.8%; forecast to 2016 = +16.4%
- 2012 mass grocery retail sales = +4.7%; forecast to 2016 = +27.8%
Key Company Trends
Müller and PepsiCo Team Up for Push into US Yoghurt Market: Despite criticism that it has lost sight of
its traditional strengths, US giant PepsiCo continues to advance into healthier categories, with the firm
announcing in July 2012 its new yoghurt offering for the US market. Through a joint venture with
Germany’s Müller, the firm is to launch three new products: Müller Corner, Müller FrutuUp and Müller
Greek Corner. The operation is set to take advantage of PepsiCo’s existing chilled distribution network,
honed through its juice brand Tropicana, and the dairy expertise of Müller
Metro Offloads UK Cash & Carry Business: Germany-based retail giant Metro Group recently
announced the sale of its UK wholesale arm Makro UK to local rival Booker in a cash and shares deal..
The move is a response to weak performance at the unit, which has been hit by changing consumption
patterns and the incursion of supermarket groups into the convenience channel. Over the last four years,
Metro’s cash-and-carry unit (from which it generates 46% of its revenues) has suffered owing to poor
performance in the domestic market and slowing sales in other Western European markets. BMI believes
a trend away from cash-and-carry outlets is structural rather than cyclical, with leading grocery retailers
expanding their operations into the convenience channel and reducing the base of independent outlets
upon which Metro is reliant. This is likely to prompt consolidation within the sector, and the tie-up
between Booker and Metro may become part of a wider trend.
Key Risks To Outlook
Continuing Eurozone Uncertainty: The single-biggest risk to our outlook is an adverse outcome to the
eurozone sovereign debt crisis and the further collapse of euro area demand for German goods. In the
event of a eurozone ‘exit’ by a larger member state over the next 12 months, the resulting capital flight
from the periphery to the eurozone core would in all likelihood lead to sharp nominal currency
appreciation for Germany, eroding the country’s export competitiveness and leading to a sudden
downward correction to the trade in goods surplus.
In the absence of political cohesion and resolve to address the structural shortcomings of the European
Monetary Union, we believe that any short-term measures designed to address the crisis will prove little
more than temporary stopgaps, continuing to weigh on household and business sentiment, in turn, placing
downside pressure on Germany’s growth outlook.