Bratwurst, Beer And BMW Aside, Don’t Expect The German Economy To Bounce Back Just Yet
12/10/2008
The German DAX index has risen for three days straight now, enough to tempt investors with international tastes to jump in line for a smorgasbord of discounted stocks.
If you’re in it for the long haul, be my guest and buy up as much as you’d like to. But if you’re looking for gains sometime in the next several months, then you probably want to invest elsewhere for the time being.
Either way though, there are some important economic factors to consider before buying up a little piece of Germany for yourself.
A Lot To Offer But Nobody To Offer It To
Germany is similar to Japan in that it makes good stuff that people want. Cars under the BMW, Volkswagon, and Mercedes brands, and beer manufacturers such as Interbrew which produces labels such as Stella Artois beer (yummy), are just the tip of the iceberg. Germany actually exports a wide variety of goods including machinery, chemicals, metals, manufacturers, food and textiles among others.
All told, that accounts for $1.354 trillion a year as of 2007. Over the past several years, the country has built a strong economy on its exports to the point where it became known as the export engine room of Europe. That’s typically an excellent title to have, but unfortunately for Germany, right now isn’t typical.
People just aren’t buying what they used to, especially key countries that Germany relies on such as fellow members of the EU which account for 40% of the country’s export sales. As for the U.S., we know all too well how much we used to spend and how much we’re now cutting back. Naturally, our newly found hesitancy towards buying takes a significant slice out of profits as well.
At The Mercy Of Everybody Else’s Profits
Things are only expected to get worse in Europe too, with the European Central Bank predicting just last week that it will shrink by 0.5% next year, the first time recorded in 16 years. And experts are calculating that the U.S. recession will last into the first half of 2009.
Thanks to this global slowdown, Germany’s sales abroad retracted by 0.5% in October as compared to the month before.
Dominic Bryant, an economist at BNP Paribas in London doesn’t see much hope for German exports either, and with good reason since even emerging markets are officially beginning to feel the pain as well.
And he isn’t the only naysayer out there. Just ask the Center for European Economic Research (ZEW), which believes that Germany is “slipping deeper into the recession” despite the upbeat attitude investors seem to have taken this week. The organization bases its findings both on the “great uncertainty about the pattern of the business cycle in the next year” and analysts’ expectations that Germany economic situation will remain largely unchanged by mid-2009.
Unicredit analyst Alexander Koch takes that information one step further, stating that the data presented indicate “that things will get worse in the coming months and quarters before there’s the prospect of stabilization.”
Taking The High Ground Might Mean Germany Loses More In The Short-Term
That’s especially true since Germany’s government is taking the road less traveled when it comes to handling the downturn. While countries elsewhere, from the U.S. to China to England and France have attempted to boost their economies through stimulus packages meant to ultimately revive consumer spending, Chancellor Angela Merkel is taking what she calls a path of “measure and middle ground” instead of a “race for billions.”
Under heavy pressure from fellow EU members to do otherwise, I honestly believe that her decision is to be commended and will pay off further down the road. Just not right now. And my bet is that we won’t see the full affects of her decision for some time to come.
The bottom line is this: Germany isn’t broken beyond repair by any means. But since its economy relies so much on others doing well, don’t expect Germany to fully recover until after everybody else has decided its ok to start spending money again.
There’s Value In The Retail Market Yet… If You Just Know Where To Look
Thursday, December 11, 2008 — by Jeannette Di Louie, Assistant Editor of Mt. Vernon Research
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