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Germany Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

We are relatively optimistic on the German economy in 2017-18, as reflected by our above-consensus real GDP growth projections. But the rebalancing of the German economy towards greater levels of domestic consumption and investment, which began looking like it was finally beginning to accelerate in 2015, has stalled. Germany will continue to run large current account surpluses, despite a gradual transition towards a more domestic demand-led growth model. 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. Chancellor Angela Merkel will struggle to retain popular support amidst the migrant crisis and rising incidence of violence across the country, but will still win the next federal election in 2017 if she decides to run.

Table Of Contents

Germany Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth To Remain Solid As Rebalancing Stalls 8
We are relatively optimistic on the German economy in 2017-18, as reflected by our above-consensus real GDP growth projections But
the rebalancing of the German economy towards greater levels of domestic consumption and investment, which began looking like it
was finally beginning to accelerate in 2015, has stalled
GDP By Expenditure Outlook 10
TABLE: GDP GROWTH FORECASTS 10
TABLE: PRIVATE CONSUMPTION FORECASTS 10
TABLE: GOVERNMENT CONSUMPTION FORECASTS11
TABLE: FIXED INVESTMENT FORECASTS 11
TABLE: NET EXPORTS FORECASTS 11
Fiscal Policy And Public Debt Outlook12
No Deviation From Conservative Fiscal Path12
The German government will not deviate from its conservative fiscal stance in the coming years, with low borrowing costs and stable
growth facilitating a steady reduction in the public debt ratio While infrastructure spending will rise modestly, net public investment will
remain near zero
Structural Fiscal Position 13
TABLE: KEY FISCAL DATA 14
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES14
Outlook On External Position 15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 15
TABLE: TOP 5 IMPORT SOURCES AND GOODS IMPORTS 16
TABLE: TOP 5 EXPORT DESTINATIONS AND GOODS EXPORTS 16
Currency Forecast 17
EUR: Further Downside Ahead As Inflation Pressures Rise17
The euro looks set for further weakness following the break of support at USD1 10/EUR, and the next level to watch will be USD1 06/
EUR in the near term
TABLE: BMI EUROZONE CURRENCY FORECASTS17
Monetary Policy 19
ECB Tightening A Long Way Off 19
The European Central Bank (ECB) will extend its asset purchase programme from March 2017 to at least September 2017 There is a
growing likelihood that asset purchases will begin slowing by the end of 2017, but the ECB will keep policy extremely accommodative
regardless, with policy rates at very low levels through at least 2019, and other programmes launched to promote bank lending
Chapter 2: 10-Year Forecast 23
The German Economy To 2025 23
Rebalancing To Play Out Slowly 23
German economic growth will moderate over the coming decade as a result of population decline, eroding competitiveness and slower
productivity growth The economy will gradually rebalance away from exports and towards domestic demand, although the pace will be
too slow to meaningfully address structural imbalances within the eurozone
TABLE: LONG-TERM MACROECONOMIC FORECASTS 23
Contents
Chapter 3: Political Outlook 27
SWOT Analysis 27
BMI Political Risk Index27
Domestic Politics28
Berlin Vote Another Blow To Merkel's Migrant Policy 28
A strong result for the right-wing Alternative for Germany in Berlin's state election will ensure the migrant crisis remains a major political
divider in the coming months ahead of the autumn 2017 federal election Chancellor Angela Merkel's Christian Democrats will continue
to bear the brunt of public concern over mass immigration, which could damage her party's electoral chances at a national level
TABLE: POLITICAL OVERVIEW 28
Long-Term Political Outlook 30
Difficult Decisions Ahead 30
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 33
Operational Risk 33
TABLE: DEVELOPED STATES - LABOUR MARKET RISK 33
TABLE: DEVELOPED STATES - LOGISTICS RISK 36
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK 39
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK 41
Chapter 5: BMI Global Macro Outlook43
Global Macro Outlook 43
Austerity Has Peaked, But Populism Is Not Yet Policy 43
TABLE: GLOBAL ASSUMPTIONS43
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 44
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 45
TABLE: MACROECONOMIC DATA and FORECASTS 47

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