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Germany Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views


Germany will feel the impact of 'Brexit' via weaker export growthand reduced private sector confidence as European political andeconomic risks rise, and we have revised down our real GDP growthforecasts for the country. Nonetheless, Germany's domestic demandstory will remain robust, with household consumption and residentialconstruction growing strongly in the next few years.Germany will continue to run large current account surpluses, despitea gradual transition towards a more consumption-based growthmodel.Strong revenue growth, containment of expenditure and low interestrates will continue to contribute to a lower German general governmentdebt load over time. There is increasing scope to commit morefunds to growth-boosting infrastructure investments, but the windowfor such a policy shift may be closing.Chancellor Angela Merkel will struggle to retain popular supportamid the migrant crisis and rising incidence of violence acrossthe country but will still win the next federal election in 2017 if shedecides to run.

Table Of Contents

Germany Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook ... 8
Domestic Demand To Shrug Off Brexit.8
Germany will feel the impact of Brexit via weaker export growth and reduced private sector confidence as European political and
economic risks rise, and we have revised down our real GDP growth forecasts for the country. Nonetheless, Germany's domestic
demand story will remain robust, with household consumption and residential construction expected to grow strongly in the next few
years.
GDP By Expenditure Outlook.. 10
TABLE: GDP GROWTH FORECASTS10
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS...11
TABLE: FIXED INVESTMENT FORECASTS..11
TABLE: NET EXPORTS FORECASTS11
Fiscal Policy And Public Debt Outlook.. 12
Strong Budget Dynamics Provide Scope To Invest...12
Strong revenue growth, containment of expenditure and low interest rates will continue to contribute to a lower German general
government debt load over time. There is increasing scope to commit more funds to growth-boosting infrastructure investments, but the
window for such a policy shift may be closing.
Structural Fiscal Position 13
TABLE: KEY FISCAL DATA.13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES, 2015...14
External Trade And Investment Outlook ... 15
Domestic Demand Not Offsetting Large CA Surplus.15
Germany's competitive export sector and large stock of foreign assets will keep external revenue inflows elevated in the years to come.
This will continue to produce large current account surpluses despite Germany's transition towards a more consumption-based growth
model.
Outlook On External Position.. 16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS...16
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.17
TABLE: TOP 5 IMPORT SOURCES AND GOODS IMPORTS (2015)18
TABLE: TOP 5 EXPORT DESTINATIONS AND GOODS EXPORTS (2015)..18
Regional Monetary Policy 19
ECB Policy: Looser For Longer...19
The economic slowdown caused in part by the UK's vote to leave the EU in June has increased the chances that monetary policy
tightening in the eurozone will be pushed back even further. But even more importantly, the potential for systemic crises and the longterm
debt outlook increasingly suggest that the path of least resistance for the ECB will be to keep short-term rates as low as possible
for as long as possible, while extending quantitative easing.
TABLE: ECB REFINANCING RATE FORECASTS (%)...19
Regional Currency Forecast... 22
EUR: Heading To Parity As Fiscal Woes Take Their Toll..22
We have revised down our forecast for the euro, now seeing the currency weakening gradually over the coming years. The euro is
caught between the risk of rising inflation expectations on the one hand and a rising risk premium over the future of the eurozone on the
other.
TABLE: BMI EUROZONE CURRENCY FORECASTS 22
TABLE: EXCHANGE RATE FORECAST REVISIONS 23
Chapter 2: 10-Year Forecast... 25
The German Economy To 2025... 25
Accepting Slower Growth For Eurozone Stability..25
German economic growth will slow over the coming decade as a result of population decline, eroding competitiveness and slower
productivity growth. The economy will partially rebalance away from exports and towards domestic demand, partially addressing one of
the eurozone's largest structural imbalances.
TABLE: LONG-TERM MACROECONOMIC FORECASTS. 25
Chapter 3: Political Outlook... 29
SWOT Analysis. 29
BMI Political Risk Index... 29
Domestic Politics. 30
Public Security To Rise Up Agenda Ahead Of 2017 Election...30
A series of violent incidents in Germany will increase concerns about public security ahead of federal elections due by the autumn of
2017. In particular, Chancellor Angela Merkel's relatively open immigration policies are likely to face further criticism, probably boosting
support for the right-wing nationalist Alternative für Deutschland party.
TABLE: POLITICAL OVERVIEW.30
Long-Term Political Outlook... 31
Difficult Decisions Ahead.31
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, will be hard to address without threatening political stability, while
others, such as re-defining Germany's role in Europe, could also prove destabilising.
Chapter 4: Operational Risk... 35
SWOT Analysis. 35
Operational Risk Index 35
Operational Risk... 36
TABLE: DEVELOPED STATES - LABOUR MARKET RISK...36
TABLE: DEVELOPED STATES - LOGISTICS RISK..40
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK..43
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK. 45
Chapter 5: BMI Global Macro Outlook... 47
Global Macro Outlook.. 47
Brexit To Hit Global Growth.47
TABLE: GLOBAL ASSUMPTIONS..47
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %48
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...49
TABLE: MACROECONOMIC DATA and FORECASTS.. 51

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