Euler Hermes Region DACH Germany Austria Switzerland
Germany Country Risk Level Mixed picture being painted LOW
Overview The German economy is slowing appreciably after a remarkably dynamic first half of the year, with economic output expanding by only +0.2% q/q in the third quarter, down from +0.3% q/q in the second quarter. Impetus was provided by consumer spending as well as foreign trade and housing construction, while corporate capital spending remained consistently restrained. Given the currently mixed picture being painted by the economy, the outlook is characterised by only muted optimism. After the sharp GDP growth of +3.1% in 2011, we are generally looking for significantly slower growth of +1.0% in 2012, followed by +0.8% in 2013. Assuming that confidence gradually returns, investment activity should stabilise again in 2013 after contracting in 2012. In 2014, momentum should pick up again appreciably, with GDP expanding by +1.9%.
Economic Outlook no. 1189-1190 |Macroeconomic, Risk and Insolvency Outlook
Foreign trade showing signs of a slow- down. The global economic weakness and muted conditions in the eurozone have increasingly been taking their toll on exports, which expanded by only +1.4% q/q in the third quarter. Growth was underpinned solely by non- European countries, particularly the United States and Japan, whereas exports to the eurozone declined. Given the strained conditions, only zero growth in exports seems likely in the fourth quarter. Despite this slow- down, they will exceed the 1 trillion EUR for the year as a whole and presu- mably reach a new record. Thanks to a strong first half, net foreign trade will make a strong contribution of +1.3 pp to growth in 2012 but provide little sup- port of +0.1 pp in 2013.
Consumer spending is expected to show resilience. After being relatively muted in the previous quarters, consu- mer spending rebounded with an increase of +0.3% q/q in Q3, thus making a material contribution to growth. Support continues to come from favou- rable conditions in the labour market and sharp wage and salary increases. At the same time, low interest rates have been placing a damper on consumer propensity to save. With net wage growth relatively strong, consumer spending should continue expanding substantially at expected rates of +0.6% in 2012, +0.9% in 2013 and +1.2% in 2014.
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Capital spending,down in 2012, is set to rise gradually in 2013 and 2014. Against the backdrop of sustained uncertainty and very muted expecta- tions, capital spending in the cor- porate sector has continued to decline, dropping by -1.2% q/q in the third quar- ter after a decline of -3.1% q/q in the previous quarter. With capital spen- ding set to drag GDP growth down substantially in 2012, the situation should gradually stabilise in 2013, ushering in greater expansion rates in 2014. We expect a further slight decline of -1% in corporate insolvencies to 29,700 in 2012. 2013 should see a moderate turnaround in the trend, with corporate insolvencies rising by +1% to 30,000. However, given the rising number of major insolvencies, the total of bad debts is likely to increase sharply by 100 % to reach an amount of some EUR 40 billion in 2012, twice the volume reported in the pre- vious year.
Public-sector finances: a split picture. In the wake of the favourable economic conditions, the state of public-sector finances has continued to improve. Even so, a split picture is emerging: on the one hand, the deficit ratio will continue to shrink from -0.8% of GDP 2011 and may even reach the zero mark. On the other, the debt ratio, which reached an already high 80.5% of GDP in 2011, is likely to continue wide-
ning rather than dropping in 2012, be- fore noticeably falling in the next two years. The interim high in 2012 reflects the growing amount of aid being provi- ded to address the EZ debt crisis as well as the liquidation of WestLB, although it is not possible to assess accurately the extent to which this will affect debt levels._RG
To watch…
>Changes in business confidence. >Trends in order receipts, particularly foreign orders. >Germany’s share in the total bailout funds for the crisis-ridden euro countries and the resultant downside risks for the economy. >Economic and social debates with the upcoming parliamentary elections (Sep-tember)._