“Germany is struggling,” say Kevin Fletcher, Harri Kemp and Galen Sher in an IMF blog. The world’s third-largest economy was the only G7 member to contract last year and looks set to be the group’s slowest-growing economy again this year.
Still, the idea that an economic model built on manufacturing and cheap Russian gas is “irreparably broken” is overstating things. Wholesale gas prices have now returned to 2018 levels. The chemicals, metals and paper industries were hit hard by the energy crisis, but they only account for 4% of the economy. Electric vehicle (EV) exports rose 60% last year – VW and BMW alone account for over 10% of global EV sales.
Germany's economy
Germany is still running a trade surplus equivalent to 4.3% of GDP – above the average of the last two decades and hardly the sign of a declining industrial power. While industries like chemicals decline, high-value-added activities – especially in research and development – aren’t going anywhere, Robin Winkler of Deutsche Bank tells Jonathan Packroff for Euractiv.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That said, a “second year of near-recession” is taking its toll, says Packroff. Insolvencies rose 41% in the first half of the year, an unusual trend in a country that rebounded quickly from shocks such as the 2008 crisis. Things should improve as the global trade cycle turns, says Martin Wolf in the Financial Times. But deeper structural problems are becoming a source of concern.
The ageing population will see growth in the German labour force lag other G7 members for the rest of this decade. Deglobalisation raises acute questions for Germany’s export-based economic model and the country is woefully behind in digitalisation. In the UK we complain about creaking infrastructure because public investment has been a measly 3% of GDP in recent years – but in Germany it has been even lower, at 2.5%.
Germany's stock market
Germany’s stock market lacks “breadth” compared with European peers – smaller, family-owned companies tend not to list, leaving Frankfurt the preserve of large-cap multinationals, says Jan Schildbach in a Deutsche Bank Research note. Dax-listed companies earn more than 80% of revenues outside Germany.
But for all the gloom, investors should remember that “European equity performance has been far better than economic performance”. On a total return basis (including dividends), the Dax has returned nearly 6% a year since early 2007, beating the UK and French markets (both 5.5%) over the same period.
That’s thanks to Germany’s slightly higher weighting towards the technology sector. Since 2013, German initial public offerings (IPOs) have raised the most capital of any European market except for London. Often maligned, German stocks are arguably Europe’s “hidden champion”.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Top 10 areas with the biggest inheritance tax bills – is your town on the list?People in some of the wealthiest parts of London pay the most inheritance tax – but there are a few areas outside the capital where big bills are paid when a loved one dies
-
Inheritance tax reform ‘largely protects family farms’ – what are the alternatives?Independent analysis of the government’s inheritance tax reforms has found eight out of 10 farming estates will be able to pay their IHT bill without having to sell off parts of the farm
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
How retail investors can gain exposure to Lloyd’s of LondonIt’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The goal of business is not profit, but virtueOpinion Serve your customers well, and the profits will follow, according to a new book. It rarely works the other way around, says Stuart Watkins
-
Earnings estimates are a rigged game – especially in the USThe number of US stocks beating earnings estimates tells us only that guidance has deliberately been set too low
-
Why is Britain's industrial base crumbling?Opinion More and more factories in the UK are closing, and the government doesn’t seem to care. What’s going on?
-
Scotland's former first minister Nicola Sturgeon leaves behind a toxic legacyOn the left, Nicola Sturgeon is seen as something of a political hero. That makes sense… but only if you exclude her actual record in office
-
How Trump's dog deals will damage global trade with the USOpinion Some commentators are hailing Trump’s trading savvy. Are they right?
