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Germany Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 50 pages

Core Views

Our long-held bearish view towards the German economy appears to be playing out. We have moved even further below consensus on German growth for 2014/15, as weakening confidence will cap both investment and consumption growth over the coming quarters. While we believe Germany's current account surplus has peaked,
narrowing of the surplus over the next five years will be limited by tight fiscal policy, which will in turn hamper the regional economic recovery.
German energy policy will continue to drive significant structural economic imbalances. While attempts to shield industry from the cost of transition towards renewable energy resources will curtail consumption, German industrial competitiveness will eventually suffer from higher energy costs.
We expect German foreign policy to become increasingly isolationist over the next few years, driven by the declining global influence of the US, changing attitudes of a younger generation and fatigue with the lack of reform among eurozone states.

Major Forecast Changes
We believe that the regional fallout from the Ukraine crisis exacerbated the recent collapse in leading and coincident indicators, hence our decision to move even further below consensus on growth for 2014 and 2015 – to 1.1% and 1.3% from 1.5% for both, taking us even further below consensus (currently at 1.5% and 1.8% according to Bloomberg surveys).

Table Of Contents

Germany Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
AfD Not A Flash In The Pan 8
The eurosceptic Alternative für Deutschland (AfD) party is set to remain a political force in Germany in the years ahead as tepid
economic growth and growing antipathy towards the EU enhances disillusionment with establishment parties. The AfD will not pose a
threat to the ruling Christian Democrats directly, but could force the government to adopt a tougher line towards profligate EU member
states to avoid leaking support to the AfD.
TABLE: Political Overview 8
Long-Term Political Outlook 9
Difficult Decisions Ahead 9
Although it is one of the most stable countries in the world, Germany must make some difficult political choices over the next 10 years.
Some of these, such as how to deal with a rapidly ageing population, can be addressed without threatening political stability, while
others, such as re-defining Germany's role in Europe, could prove more destabilising.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Structural Weaknesses Emerging 14
Eroding export competitiveness and slowing external demand will continue exposing Germany's structural economic weaknesses over
the next few quarters. Lack of political will to address these problems will severely restrict Germany's long-term rate of growth.
TABLE: Selected Operation Risk Index Scores 14
TABLE: GDP By Expenditure 15
Fiscal Policy 16
Few Benefits Of Tight Fiscal Policy 16
Germany's 2015-2018 fiscal plans are too modest to support growth. Balanced budgets and a declining debt burden means Germany
will remain a regional safe haven, but fiscal policy will not help periphery eurozone economies escap e low growth/high debt dynamics,
nor allow Germany to overcome its sizeable infrastructure deficit.
TABLE: Fiscal Policy 16
Balance Of Payments 18
Sluggish Rebalancing Impedes Regional Recovery 18
Germany's current account surplus peaked at 6.8% of GDP in 2013, but domestic demand will not be strong enough in the coming
years to support eurozone rebalancing or a stronger regional recovery. By perpetuating eurozone savings imbalances, impeding a more
robust recovery and encouraging investment into low yielding assets, Germany's current account surpluses offer minimal long-term
benefit for the German economy.
TABLE: Balance Of Payments 18
Regional Monetary Policy 19
ECB Easing: Signs Of Growing Anxiety 19
The ECB has embarked on additional monetary easing at the September meeting, earlier than we had expected. The ECB's almost
knee-jerk reaction to the longstanding deterioration in headline inflation and macro data suggests that the central bank has started to
backpedal fast, having previously played down the risks of deflation. We do not view the new measures as a major new expansion of
monetary policy, but believe that the ECB's actions and reference to the size of its balance sheet indicate that the tide is starting to turn,
and that far more aggressive monetary stimulus could be on the cards.
Banking Sector 21
Growth To Improve, But Profitability Weak 21
The state-run pillar of Germany's banking sector wi ll continue to dominate non-bank lending over the coming quarters at the expense
of the commercial banks. Meanwhile, corporate bond issuance by non-financials will remain popular as companies seek alternative
financing to traditional bank loans, which will further limit industry growth and profitability.
Chapter 3: 10-Year Forecast 23
The German Economy To 2023 23
Economy Losing Its Shine 23
Germany's economic prowess is set to fade over the next decade, as productivity gains are harder to come by and an aging population
translates into slower real GDP growth. Nevertheless, the overall picture will remain one of relative economic stability, as increased
domestic consumption replaces exports as a key driver of economic activity.
TABLE: Long-Term Macroeconomic Forecasts 23
Chapter 4: Operational Risk 25
Operational Risk Index 25
Operational Risk 26
Table: Developed States - Labour Market Risk 26
Table: Developed States - Logistics Risk 29
Table: Developed States - Crime And Security Risks 31
Table: Developed States - Trade And Investment Risk 34
Chapter 5: Key Sectors 37
Infrastructure 37
TABLE: Construction And Infrastructure Industry Data 38
TABLE: Construction And Infrastructure Industry Data 39
Oil and Gas 42
TABLE: Oil Production, 2012-2017 43
TABLE: Oil Production, 2018-2023 44
TABLE: Gas Production, 2012-2017 45
TABLE: Gas Production, 2018-2023 45
Other Key Sectors 47
TABLE: Pharma Sector Key Indicators 47
TABLE: Telecoms Sector Key Indicators 47
TABLE: Defence and Security Sector Key Indicators 47
TABLE: Food and Drink Sector Key Indicators 48
TABLE: Autos Sector Key Indicators 48
TABLE: Freight Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Reality Check: Uncertainty Reigns 49
Table: Global Assumptions 49
Table: Developed States, Real GDP GrowtH, % 50
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
Table: Emerging Markets, Real GDP Growth, % 51

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