Wednesday, December 18, 2013

German economy ends year with high hopes

Nothing can ruin German business optimism. The December Ifo just increased to the highest level since February 2012 and stands at 109.5, from 109.3 in November. While the current assessment component dropped to 111.6, from 112.2, the expectations component increased to 107.4, from 106.3; its highest level since March 2011. With today’s Ifo, another exciting year for the German economy draws to a close. It was another growth rollercoaster ride as the heavy winter weather distorted economic data for several months. It took until the third quarter before the economy probably showed its true face, posting GDP growth of 0.3%. The start to the fourth quarter showed an interesting dichotomy. While soft indicators remain buoyant and are often still on an upward trend, hard indicators have failed to meet expectations. Industrial production dropped in October already for the second month in a row and the trade surplus has narrowed. Even retail sales disappointed. The economy is struggling to shift up a gear. Nevertheless, we still expect growth to pick up in the remainder of the year. Filled order books and the low level of inventories still bode well for industrial activity. Moreover, the levels of all available confidence indicators correspond with a much higher GDP growth rate than the latest monthly data indicate. The crucial question for the German economy in the coming months will now be whether soft or hard indicators will start to adjust. In our view, unless German businesses have slowly lost touch with reality, the economy should pick up steam again and cruise smoothly into the next year. With today’s Ifo, the German economy starts an early but well-deserved Christmas break. The next important macro data will only be released next year. The Ifo and other confidence indicators have created a crackling anticipation of the economy’s growth prospects going into 2014. Let’s hope that there won’t be a rude awakening after the holidays.

Monday, December 16, 2013

And finally...Merkel's third term in office

Almost three months after the federal elections, Angela Merkel can officially begin her third term in office on Tuesday. It was an exciting news weekend in Germany. The grand coalition has finally received the green light from the SPD grassroots. According to the SPD, 76% of its grassroots members taking part in a postal ballot voted in favour of joining a coalition with the Christian-democrats. Almost 80% of all SPD members participated in the vote. After this final green light, the new government will officially be sworn in on Tuesday and can finally start work. Yesterday evening, all government parties named their ministers. The most interesting nominations are another term as finance minister for Wolfgang Schaeuble; the first-ever cabinet member with Turkish origin, Aydan Özoğuz, as Under Secretary for immigration, refugees and integration; the first-ever female defence minister, Ursula von der Leyen and, finally, Jörg Asmussen’s nomination as new Under Secretary in the labour ministry. The move from ECB executive board member Jörg Asmussen came as a big surprise. With Asmussen’s exit, out of all German members of the ECB’s Governing Council, only Otmar Issing has ended his official term. The other four – Welteke, Stark, Weber and Asmussen – all left earlier (due to different reasons). It seems as if Asmussen’s move to Berlin is not driven by any monetary policy conflicts but rather by his private life. With Asmussen’s exit, the ECB will lose an important connection to both the German government and the German public. In the public debate on the ECB’s monetary policy, Asmussen has been an important counterweight to Bundesbank president Weidmann. Although legally speaking no single country has a permanent seat in the ECB’s executive board, it seems impossible that Asmussen will not be replaced by another German. Yesterday, three names were already being mentioned: current Bundesbank vicepresident Lautenschläger, chief financial supervisor König and a member of the Council of Economic Advisers, Buch. Interestingly, all three possible candidates are women. European heads of state are responsible for the nomination. In our view, the nomination could take until the next Spring summit of European leaders. In theory, other countries could also put forward a candidate for the succession of Asmussen but this looks highly unlikely. Back to the new German government. The nomination of all ministers shows that two of the most important policy topics for the coming years will be highly influenced by the social-democrats: the introduction of a minimum wage and the energy transition. The social democrats received the ministries for labour and a new “super-ministry” combining the economy and energy. Angela Merkel as chancellor and Wolfgang Schäuble as finance will remain in the driving seat of the other well-known “hot topics: fiscal and European policies, including the Eurozone crisis management. All in all, the composition of the next German government shows that the socialdemocrats have negotiated well. The next government will be a coalition of two parties almost at eye level. Some might see this as a problem as it does not fully reflect the results of the elections. In our view, however, this distribution of power could eventually turn out to be a blessing, at least if it leads to a more stable coalition.

Wednesday, December 11, 2013

Kerstwensen

De verlanglijst van mijn zoon voor Kerstmis is dit jaar heel kort, maar krachtig. Er staan maar twee cadeaus op. Helaas geen teken van nieuwe bescheidenheid. Een hond of - liever én - een smartphone. Jammer dat het hem net zo zal vergaan als de meeste Europeanen: niet alle wensen worden werkelijkheid. Net als mijn zoon kijkt ook de eurozone dezer dagen reikhalzend uit naar pakjesavond. De verwachtingen zijn hoog. Ligt er - gezien de recente stabilisatie van de economie - eindelijk een aanhoudend herstel in het verschiet? En, valt eindelijk de grote doorbraak op de weg naar meer integratie van de monetaire unie? Zo'n anderhalf jaar geleden leek het eventjes dat de stoutste wensen van alle Europeanen werkelijkheid werden. Het was bijna alsof Sinterklaas, de Kerstman en de paashaas gelijktijdig kwamen opdraven toen Herman Van Rompuy, José Manuel Barroso en Mario Draghi de eurozone eindelijk de lang verwachte visie voor de toekomst van de monetaire unie brachten. De monetaire unie moest worden voltooid met een bankenunie, een begrotingsunie, een economische unie en uiteindelijk een politieke unie. De jackpot leek binnen! De drie benadrukten alleen maar wat alle historici al lang weten: tot nog toe heeft geen enkel monetaire unie overleefd zonder een politieke unie. Eind 2013 is de vonk in de ogen van overtuigde Europeanen gedoofd. In plaats van een onafhankelijke begrotingsautoriteit met een uitgebreide centrale begroting is de begrotingsunie een verzameling geworden van twopacks, sixpacks en fiscal compacts. Een ondoorzichtige constructie, die langzamerhand de macht moet verschuiven van het nationale naar het Europese niveau, maar dan zonder dat iemand het merkt. De bankenunie bestaat tot nog toe alleen uit een Europees bankentoezicht. In plaats van een Europese bankenafwikkelingsautoriteit komt er slechts een ingewikkelde constructie tussen nationale en Europese verantwoordelijkheden. Van Rompuy, Barroso en Draghi bleken dus toch geen trojka van Kerstmannen met lange baarden. Veeleer de Drie Koningen, die de Europese ster volgen. Een ster die door de regeringsleiders wordt gestuurd. De realisaties inzake de begrotingsunie en de bankenunie vallen bescheiden uit. Over alle andere plannen wordt nauwelijks nog gesproken. De herstelwerken aan de monetaire unie zijn stroperiger dan gehoopt. Mondjesmaat gaat het de goede kant op, maar kort voor kerstavond moet de Europeaan zich eerder met een knuffelhond tevreden stellen dan met het gezelschap van een aanhankelijke golden retriever. Mijn zoon zal, zoet gehouden met een Xbox-spelletje in plaats van met een smartphone, zijn teleurstelling na kerst waarschijnlijk snel verwerken. Hij heeft nog tijd om zijn wensen te realiseren. Intussen blijft zijn vader toch stiekem hopen dat de Europese regeringsleiders hem zo kort voor Kerstmis onverwacht zullen verrassen. Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

Monday, December 9, 2013

German economy still struggling to shift up one gear

Mixed start of the fourth quarter. This morning’s data cast new doubt over the strength of the German economy. Particularly the second consecutive drop of industrial production indicates that the economy really needs two strong months if it still wants to meet the high expectation in the final quarter of the year. In October, industrial production dropped by 1.2% mom, after a 0.7% drop in September. On the year, industrial production is still up by 1.0% yoy. The decrease was broadly-based, driven by all sectors, with the sharpest drops in the production of capital goods (-3.0% MoM) and durable consumer goods (-4.5%). After the revival in the first half of the year, the construction sector continued its latest slowdown, decreasing by 1.7% mom. Earlier this morning, October trade data showed a new record high for German exports. In non-seasonally adjusted terms, German exporters sold goods worth 99.1 bn euro. In seasonally-adjusted terms, exports rose by 0.2% mom, after 1.6% in September. Since May, German exports have increased by more than 3%. Another month of German export successes should, however, be no reason for new international criticism as at the same time imports increased by 2.9% mom. As a result, the German trade surplus narrowed to 16.8bn euro, from 18.7 bn euro in September. The trade balance with the rest of the Eurozone is, by the way already, in balance. Germany’s trade surplus is mainly a result of its export successes outside of Europe. Looking ahead, filled order books and the low level of inventories still bode well for industrial activity. Moreover, the less prominent Sentix indicator, which measures investors’ expectations, today increased to the highest level since April 2011 in December. Expectations even reached their highest level ever since the start of the survey in 2009. Over the last months, the Sentix indicator has been an excellent leading indicator for more prominent indices like the ZEW and Ifo index. If this track record continues, the economy could end the year 2013 on another wave of enthusiasm. However, the real economy will have to catch up. Otherwise it could become a rather sentimental wave of enthusiasm. With a narrowing trade surplus and dropping industrial production the German economy did not have the overwhelming start to the fourth quarter confidence indicators had suggested. Still, in our view, the economy should pick up speed again, ending the year on a positive note.

Thursday, December 5, 2013

No early Christmas gifts in Frankfurt

The ECB did not bring any early Christmas gifts today and left interest rates unchanged. ECB president Draghi stressed the ECB’s determination to fight any deflationary tendencies. However, he was rather unclear on how and when the ECB would act again. Tone and content of today’s meeting were rather typical for these intermediate meetings in which the ECB cannot or does not want to deliver additional action. The introductory statement was almost a verbatim copy of the November statement. The ECB still expects “a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on”. This assessment of the inflation outlook was backed by the latest ECB staff projections, which forecast headline inflation to come in at 1.4% in 2013, 1.1% in 2014 and 1.3% in 2015. The most remarkable forecast is the 2015 forecast. It is the lowest “2-years-ahead” inflation forecast ever. As regards the economic outlook, the ECB still expects a very gradual recovery in the coming two years, driven by some improvement in domestic demand. This assessment is also reflected in latest ECB staff forecasts, which now foresee GDP growth at -0.4% in 2013, 1.1% in 2014 and 1.5% in 2015. Overall, the subdued growth forecast combined with inflation remaining far below the ECB’s target for three years raises opens the door for further ECB action. Mario Draghi’s statement that “we are fully aware of the protracted downside risks that a longer period of low inflation does imply” combined with the ECB’s forward guidance and a fierce “we are ready and able to act” sent a clear message: the ECB is prepared and preparing to do more. Draghi’s strong hint at further action is another illustration of the ECB’s u-turn on deflationary risks, within a couple of months. It should not be new for the bright minds in the EuroTower that a long-lasting process of structural deleveraging across sectors and economies exerts deflationary pressure. Still, the ECB had been rather benign on deflationary risks for a long while, nicely illustrated by Mario Draghi’s comments at the June press conference that “with low inflation, you buy more stuff”. The November cut apparently has marked a new episode: the deflation-fighting period. Looking ahead, today’s ECB meeting leaves two crucial questions unanswered: i) which additional steps could the ECB really deliver; and ii) what would actually trigger further actions? As regards the ECB’s toolbox, Draghi tried to make it bigger than it probably is. Comments like “we have numerous instruments” or “an entire artillery” were quickly followed by statements that any kind of QE, conditional LTROs like the BoE’s funding for lending scheme or even not sterilising the SMP programme were not easy to implement. We did not get the impression that the ECB already has a detailed plan of action ready. Interestingly, Draghi mentioned that the ECB had briefly discussed the possibility of a negative deposit rate today. As regards the timing of an additional action, Draghi refrained from giving any hints. In our view, Draghi’s comments can be rephrased as: if deflationary forces increase and/or headline inflation drops unexpectedly, the ECB will ease further. Bolder steps that could be a major step to repair the monetary policy transmission mechanism, however, are technically hard to implement and clearly controversial within the Governing Council. Reverting to rather traditional interest rate cuts could eventually still turn out to be the ECB’s first answer to new deflation risks. All in all, ECB president Draghi did not present any early Christmas gifts for the Eurozone. Instead, the ECB will have to use the Christmas period not only for contemplation and reflection but also for more studying of its non-standard measures.

Monday, December 2, 2013

Freund oder Feind?

Die Brüsseler Beamten haben in Europa nicht viele Freunde. Wer ständig Einsparungen und schmerzvolle Reformen propagiert, muss sich nicht wundern, dass die Zahl der Freunde überschaubar ist. Daher freut man sich jetzt umso mehr, dass man ab Januar einen neuen Geistesverwandten begrüßen kann. Im Januar tritt mit Lettland das 18. Mitglied der Währungsunion bei. Für viele ist dieser Beitritt das logische Ende einer wirtschaftlichen Erfolgsgeschichte. In den letzten Jahren hat Lettland eine wirtschaftliche Rosskur durchgezogen. Mit Gehaltskürzungen von mehr als 20% und einem strikten Sparkurs hat das Land sich an den eigenen Haaren aus der Rezession gezogen und gleichzeitig für den Euro qualifiziert. Für viele ist Lettland ein leuchtendes Beispiel dafür, dass sich ein langer Leidenswert auch lohnen kann und dass Austerität und Wachstum kein Widerspruch sind, sondern Voraussetzungen für neues Wachstum sein können. In Brüssel und Deutschland freuen sich einige jetzt schon, dass man endlich einen Verbündeten dazu bekommt. Einen Verbündeten, der solide Staatsfinanzen und Reformen vorlebt. Einen Verbündeten im Kampf gegen die Reformverweigerer und Verschwender in Südeuropa. Man sollte sich nicht zu früh freuen. Hinter der glänzenden Fassade schlummert nämlich eine sehr unangenehme Seite. Ein großer Finanzsektor, eine starke Abhängigkeit der Banken von ausländischen Bankeinlagen und dubiöses Geld aus ehemaligen Sowjetstaaten wecken Erinnerungen an einen kleinen Inselstaat im Mittelmeer. Die drittniedrigste Körperschaftsteuer aller EU-Staaten und die Abschaffung der Quellensteuer auf Gewinnausschüttungen könnten aus Lettland schnell eine internationale Steueroase machen. So groß die Freude über die Attraktivität des Euroraums auch ist, die Brüsseler Beamten müssen aufpassen, dass es nicht bald heißt: mit solchen Freunden braucht man keine Feinde. Diese Kolumne erschien eher als 'Letter from...Brussels' in der Euro am Sonntag.

Thursday, November 28, 2013

German labour market sends first gentle sign of warning

German unemployment increased by a non-seasonally adjusted 5,000 in November, bringing the total number of unemployed to 2.806 million. In seasonally-adjusted terms, unemployment increased by 10,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.9%. The Fall revival of the German labour market turned out to be softer than normal. In fact, the November numbers are the worst November performance of the German labour market since 2004. Clear signs of a bottoming out of the labour market. For the time being, the German labour market will remain an important growth driver. Record high employment combined with yet another increase in real wages (+1% YoY since the beginning of the year) bodes well for private consumption. And, indeed, German consumers seem to get into some kind of shopping frenzy, or at least some anticipation of Christmas shopping. Yesterday’s GfK index showed that the willingness to buy has reached its highest level since December 2006. The new coalition deal on a minimum wage as of 2015 should increase disposable incomes, thereby supporting private consumption. At least in the short run. Currently, more than 5 million Germans could see a wage increase from the introduction of a minimum wage. The longer run impact on jobs remains unclear. Historical evidence from other countries is unfortunately not straight-forward on whether minimum wages lead to job shedding or not. This historical evidence provides arguments for both opponents and supporters. Economics is not an exact science. In our view, however, one thing is clear: after the introduction of a minimum wage, it will be hard to squeeze additional positive effects out of the labour market. Today’s numbers send a clear warning that the labour market has reached its natural rate of unemployment. To continue the current job market miracle or start a new one, a minimum wage should be flanked by additional measures to create new jobs. Even children know that only redistributing the pie eventually leads to an empty plate.

Wednesday, November 27, 2013

Germany (almost) has a new government

Germany is preparing for a grand coalition. After weeks of negotiations, the parties agreed on a coalition deal. Now, the SPD members will have to give the final green light. More than two months after the elections, Germany finally has a coalition deal. Early yesterday morning, the two Christian-democratic parties (CDU and CSU) and the socialdemocratic SPD reached a final coalition deal. The final deal is a 185-page package with lots of good descriptive analysis but also many meaningless words. Stripping down the coalition deal to the essentials, a couple of tangible issues and measures remain. The most remarkable measures are probably the introduction of a minimum wage of €8.50 starting in 2015 but with a transition period until 2017, the reduction of the retirement age to 63 years for persons with a work life of more than 45 years, a pension increase for mothers with children born before 1992, a principal agreement on a highway toll and changes to dual citizenships. In addition, the coalition deal includes several expenditure increases to build or renovate schools and childcare facilities, to modernize highways and to reintegrate long-term unemployed but also higher expenditures into development aid. These measures could amount to around €40bn (1.6% GDP). Interestingly, the coalition partners want to finance these additional expenditures without tax increases. In fact, the goal of a balanced fiscal balance remains unchanged. These calculations might work at the current juncture with strong economic growth and record high tax revenues. However, it is doubtful that the new expenditure plans could survive an economic downturn without higher taxes and/or increasing the fiscal deficit. While the announced measures for the domestic economy clearly reflect a socialdemocratic stamp combined with several presents, Germany’s European and Eurozone policies will not change with the new coalition. The coalition deal confirms the well-known approach of solidarity against solidity, meaning weaker Eurozone countries can be rescued but only if they implement structural reforms. Moreover, the coalition deal underlined Germany’s “no” to debt mutualisation, common Eurobonds, a debt redemption fund and a common deposit guarantee scheme. Fiscal consolidation will also remain a red thread. As regards to further Eurozone integration, the coalition deal remains rather vague. The big vision thing is still missing. Instead, the new government looks set to pursue the idea of reform contracts to create additional incentives for structural reforms, will push to exclude costs of future bank recapitalisations from fiscal deficit calculations and will rather slow down than accelerate the speed towards a banking union. Interestingly, the new coalition seems to add a new condition to direct bank recapitalisation through the ESM. The EU summit in the summer of 2012 agreed to allow for direct ESM bank recapitalization (after a bail-in cascade and national contributions) once the ECB has taken up its new role as bank supervisor in late-2014. The new German coalition only wants to agree to direct bank recapitalisation once the Eurozone has also agreed on a bank resolution mechanism. While Germany continues to commit to further Eurozone integration, it remains striking that every time concrete steps and measures have to be taken, it is often Germany which slows down the process. All in all, the coalition deal is what it was expected to be: a compromise. Whether the coalition will last, now depends on the ballot of SPD members, with the results expected in mid-December. As regards to the economic aspects of the coalition deal, it looks as if the new government’s focus is on redistributing the harvest of earlier economic reforms, rather than using the economic good times for new structural reforms. The short-term impact on the economy should be positive. However, in the longer term, the coalition deal could turn out to have been a missed opportunity.

Friday, November 22, 2013

German Ifo points to growth acceleration

The return of the island of happiness. Germany’s most prominent leading indicator, the Ifo, just beat even the wildest expectations by increasing to its highest level since April 2012. The headline Ifo reached 109.3 in November, from 107.4 in October. Both current assessment and expectations improved. The expectations component spurred to its highest level since April 2011. The German economy is cruising along smoothly. Growth in the last two quarters was partly affected by one-offs and the economy’s real strength is probably somewhere in between. Latest confidence indicators confirm that the economy should continue growing at around its potential growth rate in the coming futures. Particularly the near term outlook for industrial production has brightened again. Since the start of the year, order books have increased by more than 7% and there are encouraging signs that industrial production should rather accelerate than decelerate in the coming months. Production plans are at the highest level in more than two years and inventories just dropped to the lowest level since September 2011, boding well for future industrial production. Moreover, the increase of recruitment plans to the highest level since June 2012 indicates that the industrial sector is also returning as a source of future employment growth. All in all, German economic growth is clearly the last thing we have to worry about. A comfortable position for the next government. Contrary to most other governments in the Eurozone, the next German government will not have to start domestic crisis management but could and should use the good economic times to prepare the economy for the future.

Thursday, November 21, 2013

Historical day with no one noticing

Eurozone finance ministers have started to see each other almost as often as during the peak of the crisis. After last week’s meeting on bank resolution, they come together this afternoon in Brussels to discuss the European Commission’s latest fiscal assessments. In fact, today’s meeting is a historical meeting. Unfortunately, hardly anyone realises it. For the first time, the Commission has issued opinions on countries’ draft fiscal plans. Contrary to past policies, these opinions were made in parallel with governments sending the draft plans to their respective parliaments. This new set-up is part of the new fiscal surveillance framework, strengthening the role of the Commission. It gives the Commission the opportunity to influence and intervene in fiscal plans while they are still in the making. That’s at least the theory. In practice, the European Commission put on its velvet gloves for the first exercise under the new rules. In fact, the Commission has developed a sophisticated system of verbal categories for their assessments. No single government will be sent to the drawing table to revise its budget. In European slang, this reads as “no Draft Budgetary Plan has been found to be in serious non-compliance with the obligations of the SGP and that it is not necessary to request revised budgetary plans”. The Commission’s categories range from “compliant with the rules of the Stability and Growth Pact”, “broadly compliant”, “compliant with no margins” and “risk of non-compliance”. Using our EU dictionary, this translates into: Germany and Estonia are the only two countries without any fiscal problems, while all other countries need to stick to their plans as closely as possible; additional measures cannot be excluded.  For European insiders, today’s Eurogroup meeting is historical as it marks the next step of the first implementation of the Eurozone’s new fiscal surveillance framework. For this first exercise, however, the European Commission has put on its velvet gloves and left the fiscal axe at home. The Commission remains very cautious in using its newly won powers. Cautious or not, one thing is clear: fiscal policies in the Eurozone continue to point in one direction; and the direction is not towards loosening.

Tuesday, November 19, 2013

German ZEW improves again

Full speed ahead? The German ZEW index increased in November to the highest level since October 2009. The ZEW index, which measures investors’ confidence, increased for the fourth consecutive month and now stands at 54.6, from 52.8 in October. At the same time, investors have become slightly less positive on the current economic situation. The current assessment component dropped to 28.7, from 29.7 in October. The end of the US government shutdown blues, the Eurozone stabilisation, the ECB’s rate cut and the latest stock market rally seem to have heeded analysts’ optimism. The ZEW index has not the best track record when it comes to predicting German economic activity. In fact, since 2006, the index had a tendency to “miss” the periods of strong growth. Since mid-2011, however, the components of the ZEW and the Ifo have broadly stayed in tune. With this in mind, we could see another strong Ifo reading at the end of this week. The German economy continues to benefit from low interest rates, the strong labour market, solid domestic demand and the improved outlook for external demand. With the US leaving its government shutdown blues behind, at least until the end of the year, peripheral Eurozone countries stabilising further and China rebalancing its growth model, the recently criticized export sector should flourish again. As a consequence, the German economy should cruise along rather smoothly to the end of the year.

Thursday, November 14, 2013

Rugwind in een glas water

De Duitsers hebben het weer gedaan. De eurocrisis, het zwakke economische herstel, de Franse hervormingsachterstand, deflatie. Allemaal het gevolg van te grote Duitse handelsoverschotten. Wat begon met een bericht van het Amerikaanse ministerie van Financiën werd dankbaar overgenomen door analisten en commentatoren en vindt nu zijn hoogtepunt in een officieel onderzoek van de Europese Commissie. Duitslandbashers hopen stiekem dat het slimste jongetje van de klas eindelijk een pak slaag krijgt. Duitse patriotten hoeven zich niet boos te maken, het is maar een storm in een glas water. De kritiek op de Duitse handelsoverschotten is natuurlijk grote onzin. De Duitsers manipuleren de wisselkoers niet en hebben ook geen importbarrières. De export is de afgelopen jaren minder hard gegroeid dan die van Spanje en de handelsbalans is nu al in evenwicht met de rest van de eurozone. Het overschot komt door de exportsuccessen in verschillende opkomende landen en in de VS. De Duitsers minder laten exporteren, wordt dan ook moeilijk. De UEFA vraagt Bayern München ook niet met een speler minder te spelen omdat het elke wedstrijd wint. Bovendien doet de kritiek op de zwakke particuliere consumptie op dit moment niet ter zake. Van alle eurolanden groeide de consumptie sinds 2009 alleen in Luxemburg harder dan in Duitsland. En zelfs al vindt de Commissie het Duitse handelsoverschot te hoog, wat moet Duitsland dan doen? De fabrieken in november al sluiten voor de rest van het jaar? Minder concurrerende bedrijven zouden hoogstens landen helpen die in directe concurrentie staan met Duitsland op de internationale markten. Dat zijn Frankrijk en Italië, maar niet de Zuid-Europese landen. Die profiteren juist van de Duitse export omdat ze vaak een onderdeel zijn van de Duitse productieketen. De Duitsers zullen dus blijven exporteren. De huidige kritiek snijdt alleen hout als het gaat om de binnenlandse investeringen. Die zijn de afgelopen jaren namelijk sterk achtergebleven. Meer Duitse investeringen zijn goed voor Duitsland, maar slechts in zeer beperkte mate voor de rest van Europa. Om het handelsoverschot te verlagen met 1 procent van het bruto binnenlands product (bbp) moet het begrotingstekort volgens berekeningen van de Commissie met meer dan 2 procent van het bbp oplopen. Weinig kans dat de hoeder van de Europese begrotingsregels een land met een schuldgraad boven 80 procent van het bbp zal oproepen nieuwe schulden te maken. Waarschijnlijk zal de Commissie Duitsland alleen voorzichtig vragen iets meer te doen voor de binnenlandse investeringen. En dat wordt tijdens de coalitieonderhandelingen sowieso al besproken. Zo bezien is de storm van de afgelopen week alleen rugwind voor de nieuwe regering. Rugwind in een glas water. Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

Wednesday, November 13, 2013

German growth normalisation

Back to normal. After a strong second quarter, the German economy has returned to its potential growth rate in the third quarter. According to the first estimate of the German statistical office, the economy grew by 0.3% QoQ, from 0.7% QoQ in 2Q. On the year, German GDP is up by 1.1%, from 0.9% in 2Q. The individual growth components will only be released at the end of the month but available monthly data and the statistical office’s press release suggest that growth was driven by domestic demand. Private consumption, investments and construction increased, while net exports weighed on growth. Interestingly, German private consumption growth since 2009 has been the strongest of all Eurozone countries, except for Luxembourg. In fact, the German economy is already in a longer process of rebalancing, just out if its own.

The German economy remains the stronghold of the Eurozone. Looking ahead, there is little reason to doubt the stability of the German economy. The positive mix of record high employment, wage increases and strong external demand for German products should remain in place for a while. Latest soft indicators confirm this bright picture. Since the start of the year, order books have increased by more than 7% and there are encouraging signs that industrial production should rather accelerate than decelerate in the coming months. Production plans are at the highest level in more than two years and inventories just dropped to the lowest level since September 2011, boding well for future industrial production. 

If anything, the next government should further boost growth. At least in the short run. Just think of the minimum wage and possibly some tax relief. As regards the medium term outlook, however, the impact from the next government is still uncertain, given the lack of decisions taken so far. Two factors clearly call for new reforms: i) the fact that the labour market is close to its natural rate of unemployment; and ii) the wide investment gap. To improve Germany’s growth potential, it will be important that the new government will not only reap and redistribute the harvest of earlier economic reforms but actually also seeds new reforms.

In this regards, the controversially discussed European Commission announcement to investigate Germany’s trade surplus could eventually bring some tailwind for the coalition talks. To be clear, strictly speaking, the EC is not investigating Germany’s trade surplus but a long list of 11 indicators, intended to signal macro-economic imbalances. Germany breaches the thresholds for the current account surplus, government debt and the loss of market shares. Obviously, no one will seriously ask the Germans to export less or to close their factories for a long “Eurozone rebalancing vacation”. Neither will the Commission ask German companies to become less competitive. Interestingly, Germany’s trade surplus stems from strong demand from outside the Eurozone. With the rest of the Eurozone, Germany’s trade balance is already in balance. In our view, it is not about the exports as such but about what the Germans do with these surpluses. Investing it abroad has not been a successful strategy. Therefore, stimulating domestic investments could be the missing link, pleasing both the Germans and the European Commission. As such, the European Commission could provide the next German government with some welcomed tailwind. Even if it is tailwind in a tea cup.

Carsten Brzeski


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Thursday, November 7, 2013

Another big-bang-pulling-out-all-the-stops day in Frankfurt

Never a dull moment. The ECB surprised most analysts, including us, by cutting its refi rate by 25bp to now 0.25%. At the same time, the ECB left the interest rate on the deposit rate unchanged at zero, while cutting the rate on the marginal lending facility also by 25bp. In addition, the ECB announced to keep the liquidity tap open at least until mid-2015. It is all about inflation. While the ECB has been concerned about the economic outlook for a long while, today’s rate cut was purely motivated by what ECB president Draghi called a changed outlook for inflation. According to the introductory statement, the ECB is now expecting that “we may experience a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2% later on”. Back in October, the ECB said that its forward guidance was conditional to “an unchanged overall subdued outlook for inflation”. According to Draghi, the outlook for inflation had changed over the last four weeks, thereby justifying today’s rate cut. The decision was not unanimous, at least not on the timing. Finding the changes to the inflation outlook, however, is not easy. The latest business and consumer survey from the European Commission actually showed an increase of inflation expectations. At the same time, the latest Commission forecasts, released on Tuesday, showed a stable forecast for Eurozone headline inflation around 1.4% until 4Q15. Remarkably, even if the ECB today noted that “inflation expectations for the euro area over the medium to long term continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% later on. The only thing which really has changed over the last four weeks is actual headline inflation. It looks as if the headline inflation drop in October to 0.7% YoY had a stronger impact on the ECB than we had anticipated. Interestingly, the euro exchange rate did not play a role in today’s decision. At least not officially. The exchange rate does not appear in the introductory statement, neither as a risk to the economic outlook nor as a risk to inflation. As regards the regular assessment of economic developments, the ECB still expects a gradual recovery with risks to the downside. These risks continue to be developments in global money and financial markets, but also higher commodity prices and “slow or insufficient implementation of structural reforms”. Maybe as an effort to strengthen the impact of today’s rate cut, the ECB also announced to extend all refinancing operations with full allotment at least until mid-2015. All in all, it looks as if many professional ECB watchers have to look for some freshening-up training. The ECB under Mario Draghi has become much more pragmatic and pro-active than under any of Draghi’s predecessors. Contrary to past experiences, the ECB now seems to follow the motto of “even if it does not help, it does not hurt either”. However, the long-term consequences of today’s decisions remain unclear. On the one hand, it increases the ECB’s reputation as the Eurozone’s pro-active fire fighter, while on the other hand it is a hit to the ECB’s predictability, eventually making future forward-guidance and market expectation management more complicated. It is doubtful that today’s decisions are really a crucial strike against deflationary trends in the Eurozone. Even the weakening of the euro exchange rate could turn out to be short-lived in the absence of further action. In fact, on-going deleveraging in both the private and the public sector should exert further deflationary pressure which will be hard to tackle by monetary policy. Let’s not forget that there have been more of these pulling-out-all-the-stops days at the ECB over the last years with cheerful reactions on financial markets but limited impact on the real economy. Even if Draghi reiterated that the zero bound for interest rates had not been reached, we are doubtful that the ECB can still offer many of these big-bang days in the future.

German IP disappoints in September

Temporary slowdown? German industrial production lost some momentum in September, dropping by 0.9% MoM, from an upwardly revised 1.6% increase in August. On the year, industrial production is now up by 1.0%. The drop was broadly-based, driven by all sectors except for energy, with the sharpest drops in the production of capital goods (-2.1% MoM) and in the construction sector (-1.8%). Despite today’s drop, German industrial production is still up compared with the second quarter, pointing to a GDP growth rate of around 0.3% QoQ in 3Q. Looking ahead, today’s drop should be a one-off, rather than the start of a new trend. To the contrary, the short-term outlook for industrial production has actually brightened. Since the start of the year, order books have increased by more than 7% and there are encouraging signs that industrial production should rather accelerate than decelerate in the coming months. Production plans are at the highest level in more than two years and inventories just dropped to the lowest level since September 2011, boding well for future industrial production. Moreover, the increase of recruitment plans to the highest level since June 2012 indicates that the industrial sector is also returning as a source of future employment growth. Despite our positive take on the German industry, some stains on the white shirt remain. Since the beginning of the year, foreign new orders have increased faster than domestic orders; new grist for the mills of critics of Germany’s export-orientation. In our view, this criticism is unjustified, at least when it comes to the export part of the story. The German export success is mainly driven by external demand, which has often proven to be rather price-insensitive, and not by manipulative economic policies. At the same time, however, it is undisputed that domestic demand has been sluggish for too long. Just more consumption will not do the trick. What the German economy, in our view, needs is more domestic investment. In this regards, the fact that industrial capacity utilisation remains below its historical average indicates that new investment will probably not come from traditional capacity investment but rather from investments in other areas like innovation, energy transition, infrastructure and education. Earlier this year, there still had been doubts about the strength of the German industry and its waning role as a growth driver. Despite today’s setback, these doubts have been unjustified. In the coming months, the industry should continue its comeback as the backbone of the German economy.

Tuesday, November 5, 2013

Prelude to new tensions?

The European Commission’s economic Autumn Forecast could give rise to new political tensions. Under the surface of a gradual but rather anemic recovery, hide several test cases to prove that the Eurozone’s new rules really bite. Yesterday, the European Commission published its so-called Autumn forecasts. These forecasts are broadly in line with our own predictions of a gradual but rather anemic recovery of the Eurozone in the coming two years. According to the Commission, economic growth should return in all Eurozone countries next year, except for Cyprus and Slovenia. However, the fact that even in 2015, the Commission still forecasts an output gap of 1.4% of potential GDP for the entire Eurozone, illustrates that the afterpains of the crisis will stay for a long while. A day ahead of the next ECB meeting, the European Commission also presented the first 2015 inflation forecasts of any international institution. The expected 1.4% should in our view not be enough to make the ECB afraid of deflation. At least not already this week. The most important elements of European Commission forecasts are probably not the growth and inflation figures but the forecasts for public finances and current account balances. Let’s not forget that the Commission forecasts form an essential basis for the tightened fiscal and macro-economic surveillance procedures in the Eurozone. In this regard, it was noteworthy that for the Eurozone as a whole the fiscal deficit forecast worsened for this year but was revised upwards for next year. Looking at the individual countries shows that the discussion about growth vs austerity is far from being over. France, for example, which has promised to get its fiscal deficit below the 3% GDP threshold in 2015, is now forecast to miss this target, with the Commission expecting a deficit of 3.7%. Moreover, Spain, which over the last years has been granted already two postponements to bring the deficit below 3% GDP, is now projected to reach a deficit of 5.9% in 2014 and 6.6% in 2015. An additional problem for both Spain and France is that the structural fiscal deficit (the so-called cyclically-adjusted deficit) is forecast to worsen instead of improving in 2014. Playing it according to the rules would now mean for the European Commission that it would have to demand additional austerity measures. Against the background of the recent IMF and US criticism of German current account surpluses, the European Commission forecasts received additional attention. According to the Commission, Germany’s current account surplus should diminish only somewhat, dropping from 7% of GDP in 2013 to 6.4% of GDP in 2014 and 2015. Interestingly, German import growth next year is forecast to be the strongest of all Eurozone countries. Next to Germany, there is another country recording high current account surpluses: the Netherlands, with an expected surplus of 11% in 2015. According to the so-called macro-economic imbalance procedure, a current account surplus of more than 6% of GDP for a period of three years is one of the criteria to eventually start an official procedure. All in all, yesterday’s European Commission forecasts reflect the sad truth about the Eurozone recovery. It is a very slow, fragile and anemic recovery. The still high fiscal deficits in many peripheral countries, plus France, and the high current account surpluses in several core countries offer many test cases for the European Commission to prove that the new fiscal and macro-economic surveillance rules and frameworks really bite.

Wednesday, October 30, 2013

German inflation drops in October

Inflationary pressure in Germany is further fading away. Based on the results of six states, German headline inflation dropped to 1.2% YoY in October, from 1.4% YoY in September. On the month, German prices dropped by 0.2% MoM. Based on the harmonised European definition, headline inflation decreased to 1.3%, from 1.6% in September, and is now at the lowest level since October 2010. Looking at the available components at the regional levels shows that headline inflation dropped on the back of negative base effects from oil prices and healthcare costs. Moreover, the end of university tuition in Bavaria and further price discounts on leisure activities and packaged holidays also contributed to benign inflation developments in October. Looking at consumer prices, inflationary pressure is still hard to find. Consequently, when it comes to German price developments the biggest concern for the ECB is currently probably rather tripled prices of a single construction site in Frankfurt East than headline inflation numbers. Dropping inflation rates in Germany are both bad and good news. Bad news for the rest of the Eurozone as it complicates the required price rebalancing across the Eurozone, risking a race to the bottom. But also good news for German consumers. With record high employment and nominal wage increases, dropping inflation rates should further support private consumption. At least in Germany, one of Mario Draghi’s new bromides should come true: “with low inflation you buy more stuff”.

German labour market remains source of stability

Source of stability. German unemployment dropped by a non-seasonally adjusted 47,800 in October, bringing the total number of unemployed to 2.801 million, the lowest level since November 2012. In seasonally-adjusted terms, unemployment increased by 2,000, leaving the seasonally-adjusted unemployment rate unchanged at 6.9%. The Fall revival of the German labour market turned out to be slightly softer than normal. However, with these numbers, the German labour market still remains an important growth driver. Record high employment combined with yet another increase in real wages (+1% YoY since the beginning of the year) bodes well for private consumption. And, indeed, retail sales and new car registrations in the first two months of 3Q confirm continued consumption growth. Nevertheless, today’s numbers should not deviate from the fact that the German labour market has probably reached its natural level of unemployment. The de facto stagnation of both unemployment and employment rates since the beginning of the year sends a clear signal. The impact from ageing, with the baby boomer generation leaving the labour market, and immigration could become the most important drivers of unemployment rates in the coming year. Moreover, there is another element which could affect the labour market significantly: the current coalition negotiations on a minimum wage. The social-democrats have presented a nation-wide minimum wage of 8.50 per hour as a demand they will not let go. The impact of such a minimum wage on the German labour market is controversial. Opponents of minimum wages argue that they hurt jobs, supporters say that they combat exploitation and social inequality. Even historical evidence from other countries is not straight forward but provides arguments for both opponents and supporters. Economics is not an exact science. Therefore, the proof will simply be in the eating. In the short run, a minimum wage would not only increase the lowest wages but probably also wages currently (slightly) above 8.50 per hour. Households’ purchasing power could temporarily increase. To some extent, a minimum wage in Germany would mark the end of a long journey which started with the labour market reforms in the early-2000s. After the introduction of a minimum wage, it will be hard to squeeze additional positive effects out of the labour market. To continue the current job market miracle or start a new one, a minimum wage should be flanked by additional measures to create new jobs. Even children know that only redistributing the pie eventually leads to an empty plate.

Wednesday, October 23, 2013

Eurozone - No history in the making?

This week’s summit of European leaders will probably not make it into history books as another bold step towards further Eurozone integration.

When European leaders meet today and tomorrow for their Fall Summit, the sense of urgency to take further reforms towards more Eurozone integration seems to have faded away. The latest positive developments in the Eurozone economy and the just started German coalition negotiation talks have clearly lowered the ambition level at this Summit.

More than a year ago, European Council President Van Rompuy presented his first blueprint toward a genuine economic and monetary union. Back then, the proposal was richly filled with new ideas for further integration. The ‘’vision thing” consisted of four building blocks: an integrated financial framework, an integrated fiscal framework, integrated economic policy framework and democratic legitimacy and accountability. The proposals were an attempt to go beyond the patchwork created by the reforms over the last years, consisting of two-packs, six-packs, fiscal compacts and all kind of other regulations. Let’s be clear, the measures taken since 2010 have been impressive and unprecedented, but since the presentation of Van Rompuy’s blueprint, the reform fervour has slowed down.

The biggest achievement since last summer is the single bank supervisor. The current discussions on a possible Eurozone bank resolution mechanism, however, illustrate that already the second step of Van Rompuy’s first out of four building blocks is controversial. While the Commission is pushing for a new European authority with far-reaching powers, the German government, in particular, is arguing in favour of a coordination system, consisting of national resolution authorities. Yesterday, German newspapers reported that – currently acting – Chancellor Merkel could approve a "Single Resolution Mechanism" for failing banks, provided three conditions are met: i) the SRM should only cover the Eurozone's 130 largest banks; ii) there should be clear bail-in rules; and iii)  national parliaments should agree to any public money used to recapitalise banks.

It remains very hard to understand where the German government is heading to. Over the last years, there has been a regular back-and-forth between Treaty changes and plans to strengthen European institutions on the one hand, and more inter-governmental solutions on the other hand. Of course, the sword of Damocles hangs over each step towards further integration, embodied by the German Constitutional Court. However, sometimes the Karlsruhe argument also looks like a welcome negotiation tool. It has happened several times in the past: crucial decisions were initially opposed due to the Treaty change argument but eventually nevertheless embraced, though often in a stripped version. As regards to a bank resolution mechanism, we would still expect the next German government to agree to a common Eurozone solution which is preceded by the already agreed bail-in cascade and which is funded exclusively by the financial sector. With the SPD in the next government, chances that German taxpayers’ money could ever be used to bail out other Eurozone banks have dropped to zero (if they were ever higher).

This week’s European Summit should not bring any news on the banking union or the vision thing. More than a year ago, the political promise of further Eurozone integration was reason enough for ECB President Mario Draghi to give his “whatever-it-takes” speech. It was a kind of advanced payment. Eurozone leaders still need to speed up their visionary reform efforts if they want to get even with Mario Draghi.


Tuesday, October 22, 2013

Towards a new bubble?

Yesterday’s Bundesbank report could bring international attention back to the German real estate market. Despite tentative signs of regional exaggerations, a text book bubble does not seem to be in the offing (yet).
Over the last years, there have been several indicators nicely illustrating the decoupling of the German economy from the rest of the Eurozone. Confidence indicators, unemployment rates and fiscal deficits have moved into different directions than in most other Eurozone countries. Another macro variable which has shown a totally different development is the housing market. While real estate prices have been dropping in many Eurozone countries, sometimes as the consequence of bursting bubbles, Germany has been experiencing a new real estate boom. Over the last years, prices at the national level have increased by an annual rate of around 3%.
However, national data mask vast regional differences. Prices in urban areas have spiked over the last years. Between 2009 and 2012, for example, apartment prices have increased by around 80% in Berlin. In other cities, prices increased by 15% to 30% during the same period. These developments have given rise to discussions about a possible bubble on the German real estate market. Yesterday, the Bundesbank weighed in and presented an analysis showing that prices in urban cities could be up to 10% higher than the level which can be explained by demographic and economic factors alone. In the attractive large cities, this possible overvaluation could be as high as 20%.
In our view, there are several factors behind the sharp increase in urban house prices: record low interest rates, migration from rural to urban areas and increased foreign appetite for German real estate. To a large extent, price increases are the result of a typical demand-and-supply dilemma. Demand for real estate in German cities is increasing sharply, while the supply remains hardly unchanged. This increased demand is also reflected by the fact that home ownership – which in Germany is traditionally much lower than in most European countries – has increased in recent years. At the same time, there are no reasons, yet, to call the latest developments the start of a typical bubble as experienced in other countries before. Mortgage growth has remained limited, loan-to-value ratios in Germany have been stable at around 80% and the large majority of Germans still prefer mortgages with fixed rather than variable rates. Signs of a debt-fuelled bubble are hard to find.
Even if the Bundesbank’s assessment of a fundamental overvaluation looks justified, prices – at least in urban areas – could in the short run still further increase on the back of low interest rates and limited supply.
 

Sunday, October 20, 2013

Let the negotiations finally begin

This week, the official coalition talks between Angela Merkel’s CDU and the social-democratic SPD can finally start. It probably did not need any phone calls from other Eurozone leaders, but finally, three weeks after the elections, official coalition talks in Germany will start this week. Two weeks of so-called exploratory talks had limited the options for Angela Merkel to one: the social-democratic SPD. It does not seem to be love at first sight, but on Friday both parties, CDU and SPD, announced that they were ready for official coalition talks. Yesterday, the SPD party convention gave the final green light. The SPD convention’s “yes” was sweetened by the party leaders’ list of key demands of Angela Merkel. These demands include (i) the introduction of a nationwide minimum wage of €8.50, (ii) equal pay for men and women, (iii) a financial transaction tax, (iv) more investment in infrastructure and education, (v) a strategy to boost growth and employment in the Eurozone, (vi) equal pensions for seniors in the former West and East Germany, (vii) the ability to have dual citizenship, (viii) measures to make it easier to combine work with family life, (ix) a cap on rents and (x) stricter penalties for tax evaders. In our view, these demands should hardly have the potential to derail the upcoming coalition talks. On some issues, like for example the minimum wage, the CDU had already moved towards the SPD’s position in recent days. Other issues have been phrased rather vaguely, opening the door for compromises. More controversial issues like the call for tax increases have been dropped. Once a coalition deal is struck, the SPD is still set to seek final approval in a poll of its grassroots members. The negotiations might not even be the biggest challenge, at least not for the SPD.

Tuesday, October 15, 2013

German ZEW strong in October

Still going strong. Today's ZEW index gives the impression that analysts believe in the invulnerability of the German economy. The ZEW index which measures investors' confidence increased once again in October and stands now at 52.8, from 49.6 in September. This is the highest level since April 2010. At the same time, however, investors have become slightly less positive about the current economic situation. The current assessment component dropped to 29.7, from 30.6 in September. The new dark clouds coming from the other side of the Atlantic have not yet blacked out analysts’ optimism. Today's ZEW index fits into the gradually improving picture of the German economy in the third quarter. After a disappointing start in July, all hard economic data has pointed to a stabilization of the economy at around its trend growth rate of 0.3% to 0.4% QoQ. The big unknown in this scenario of continued strong economic growth in Germany is the US debt crisis. Over the last years, the German economy often turned out to be debt crisis beneficiary. As long as the Eurozone debt crisis did not totally escalate, the German economy benefitted from low interest rates and a relatively weak exchange rate. At the current juncture, however, it is very hard to see how the German economy could benefit at all from the latest debt crisis: the US debt crisis. At best, an escalation of the US crisis could increase Germany’s safe haven status in international bond markets. Interestingly, Germany’s exposure to US government bonds is rather limited, amounting to roughly 1.5% of GDP. A further appreciation of the euro exchange rate and a sharp economic slowdown in the US would be a severe hit to the German economy. Let’s not forget that the US has again become Germany’s most important non-Eurozone trading partner. Today’s ZEW index confirms the positive prospects for the German economy. Let’s hope these positive prospects are still intact after the end of this week.

Wednesday, October 9, 2013

Politieke poker in Duitsland

De karavaan is alweer verder getrokken. Internationale media en commentatoren hebben de Duitse verkiezingen alweer afgerond. Angela Merkel heeft gewonnen. Punt, ander onderwerp. Gek, want wat nu volgt, is spannender en bepalender voor de toekomst dan enig welk moment in de campagnetijd. We zitten midden in een politiek pokerspel. 

Direct na de verkiezingsuitslag leek het alsof bondskanselier Merkel een hoge prijs moest betalen voor haar indrukwekkende overwinning. De gedoodverfde coalitiepartner, de verliezende sociaaldemocratische SPD, speelt 'hard to get' en heeft met de aangekondigde ledenraadpleging over een mogelijk regeringsakkoord een zwaard van Damocles boven de onderhandelingen gehangen. De achterliggende gedachte is duidelijk: Merkel heeft geen alternatief, dus is dit het moment om ons wensenlijstje te verzilveren. 

Hoog spel van de SPD, want juist vandaag komt een alternatief in beeld. Nadat enkele kopstukken bij de groenen zijn opgestapt, lijkt de weg vrij voor een nieuwe, minder ideologische generatie die een samenwerking met Merkel als nieuwe profileringskoers ziet. De eerste gesprekken worden vandaag gevoerd. Met de gesprekken met de groenen zet Merkel het politieke pokerspel voor een nieuwe Duitse regering briljant naar haar hand. Na de afgang van de liberale FDP, lijken de groenen zich te willen profileren als het nieuwe liberale alternatief en staan ze plotseling veel opener voor een coalitie dan amper twee weken geleden. De groenen weten ook dat veel van hun kiezers uit de hogere middenklasse komen, die ook de traditionele achterban van de FDP was. Een coalitie met Merkel kan het vehikel of het noodzakelijke kwaad zijn om de droom van een echte en volledige 'Energiewende' waar te maken. 

De SPD zal de gesprekken met gemengde gevoelens volgen. Ja, er zijn aarzelingen om een regering met Merkel te vormen. Zeker in een situatie waarin de partij veeleer naar links wilde doorbuigen. De grootste vrees van de SPD is dat ze net zoals tijdens de laatste 'Grosse Koalition' tussen 2005 en 2009 weer met huid en haar wordt opgeslokt en met verkiezingsverlies wordt uitgespuugd door Merkel. Vooral de basis van de SPD is fel tegen een nieuwe grote coalitie. Maar een samenwerking van CDU en groenen is evenmin in het belang van de SPD. Als de groenen zich als de nieuwe liberalen ontpoppen, zal het moeilijk worden hen over vier jaar te overhalen in een linkse regering te stappen. 

Wellicht passen Veggie Day en Oktoberfest dit jaar nog niet samen. De gesprekken vandaag met de groenen zijn echter een meesterlijke zet van Merkel, omdat de prijs voor een coalitie met de SPD weer daalt. Merkel houdt nu weer meer troefkaarten in haar hand dan twee weken geleden. Het is nu aan de anderen om kleur te bekennen en hun kaarten op tafel te leggen. De uitkomst van het politieke pokerspel in Duitsland blijft open.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

August IP adds positive colours to German outlook

German industrial production rebounded in August, pointing to solid growth in the third quarter. Industrial production increased by 1.4% MoM, from a 1.1% decline in July. On the year, industrial production is up by 0.3%. The increase was mainly driven by strong growth in the production of capital goods (+4.4% MoM), while the production of durable consumer goods dropped (-2.1%). After two strong months, production in the construction sector declined by 1.9% in August. The German economy is gradually leaving the disappointing July numbers behind. While exports and retail sales still cast some doubts about 3Q growth, today’s industrial production numbers paint a more positive picture. It looks as if the German economy has returned to its trend growth rate of around 0.3-0.4% QoQ. Looking ahead, in the short term, the prospects for German industry remain positive. Industrial production should further benefit from the recent inventory reduction and the increase in new orders earlier this year. According to the latest surveys, companies have reduced their inventories to 2011-levels. In the medium term, however, the export engine is facing new challenges like for example the US debt crisis, only gradually stabilising Eurozone economies and weaker growth momentum in emerging markets. Solid domestic demand should remain an insurance against unexpected export surprises but any bigger investment initiatives, which eventually should come to light during the current coalition talks, could come right on time.

Tuesday, October 8, 2013

German new orders disappoint in August

Setback. German new orders dropped by 0.3% MoM in August. This was the second monthly drop in a row. On the year, new orders are still up by 2.8% but after the strong drop in July today’s numbers are a clear disappointment. The zig-zag pattern of the last year has been broken. Unfortunately in a negative way. Nevertheless, in the short term, the prospects for the German industry remains positive. Industrial production should further benefit from the recent inventory reduction and the increase in new orders earlier this year. According to latest surveys, companies have reduced their inventories to 2011-levels. In the longer term, however, the industry needs more fuel to return to full strength. Earlier today, the statistical office reported that German exports grew by 1% MoM in August, from -0.8% in July. At the same time, imports increased by 0.4% MoM, from 0.3% in July, widening the seasonally-adjusted trade balance to 15.6bn euro, from 15.0bn euro in July. As so often in the past, German exports seem to be immune against a stronger exchange rate. German trade data also suggest that the idea of Eurozone rebalancing might need some re-thinking. Since the beginning of 2011, unit labour costs in Germany increased by around 2.5% compared with the rest of the Eurozone, while they dropped sharply in Greece (-14%), Spain (-6%) and Portugal (-5%). Up to now, while these changes in relative cost competitiveness have supported export sectors in peripheral Eurozone countries, they have not harmed German exports. The reasons for the continued strength of German exports is manifold: just think of product specialisation, price insensitive demand and strong demand from non Eurozone countries. All in all, today’s data show that the German economy is only gradually recovering from the weak start of the third quarter.

Friday, September 27, 2013

German September inflation below and not even close to 2%

Inflationary pressure in Germany is still hard to find. Based on the results of six states, German headline inflation dropped to 1.4% YoY in September, from 1.5% YoY in August. On the month, German prices remained unchanged%. Based in the harmonised European definition, headline inflation remained unchanged at 1.6%. Headline inflation is now at the lowest level in almost three years. Looking at the available components at the regional levels shows that headline inflation dropped on the back of negative base effects from oil prices and healthcare costs. Moreover, the usual drop of prices for leisure activities and packaged holidays after the summer vacation period also contributed to benign inflation developments in September. It looks as if these days, the only inflationary forces in Germany can be found in Bavaria. To be precise: in Munich at the Oktoberfest. Between 2002 and 2012, the price of one litre of beer rose by 42%. In the same period, beer prices in restaurants were only up by around 20%. On a somewhat more serious note, inflationary pressures in the Eurozone’s biggest economy are still hard to find. The often expected catching up of German prices and wages is still not happening. For the Eurozone, this has at least two implications: i) rebalancing remains a cumbersome process and ii) the ECB can continue with its highly accommodative monetary policy.

Still in the action zone - ECB preview

Only a short respite? In normal circumstances, the ongoing stabilisation of the Eurozone economy should give the ECB enough comfort to relax a bit. However, three factors are still disturbing the ECB’s comfort zone: the Fed, higher money market rates, and lacklustre credit growth. Words still seem to be the first line of defence to shield the Eurozone from higher interest rates and a stronger euro. However, the strategy of words without deeds could soon wear out. Consequently, we still expect further ECB action in the next 6 months, with liquidity operations being the preferred option. Find our ING ECB preview here: http://pull.xmr3.com/cgi-bin/pull/DocPull/76-172966-2C82/47145481/2013082708155534_E.pdf

Tuesday, September 24, 2013

German Ifo increases in September

Stabilising at a high level. Germany's most prominent leading indicator, the Ifo index, increased marginally in September to 107.7, from 107.6. While the current assessment component dropped slightly, expectations improved again. Today's Ifo provides further evidence that fears about a sharp slowdown of the German economy in the second half of the year were overdone. As so many quarters before, the third quarter started with opposing signals. While confidence indicators point to continued strong growth, hard data disappointed in July. The sharp drop of industrial production and weak retail sales have again casted doubts about the strength of the German economy. In our view, these doubts should soon fade away and today's Ifo provides welcome support for this view. The gradual filling of order books since the beginning of the year combined with some inventory reduction bodes well for industrial production in the coming months. Moreover, the recoveries of the US and UK economies, signs that the Chinese landing is a soft rather than a hard one and the tender stabilization of the Eurozone economy should support German exports. At the same time, with the wage increases of the last two years and record-low unemployment private consumption should also remain an important growth driver. The great unknown for the German growth outlook is private investment. The increase in the second quarter was welcome news but it is too early to tell whether this investment recovery is here to last. On the second day after the federal elections, all political parties are still digesting the results, preparing for the upcoming negotiations to form the next government. Yesterday’s comments from leading politicians suggest that the only feasible option is a grand coalition between chancellor Merkel’s CDU and social-democratic SPD. However, negotiations won’t be easy and could be cumbersome as the SPD will play "hard to get". The economy will obviously hardly provide any arguments to speed up the negotiations: it continues to cruise along smoothly.

Monday, September 23, 2013

Historical night with Queen Mutti

The rather dull election campaign ended with a big bang and an election evening which made history. The German elections turned out to be unexpectedly nail-biting. As expected, it was already clear with the first exit polls at 6pm CET that Angela Merkel’s CDU would become the biggest party. In fact, Merkel reversed the outcomes of the past two elections, in which she did not manage to sustain the opinion poll results on Election Day, and led her party to its best result in 20 years. Moreover, last night offered a couple of other historical moments. Merkel’s junior coalition partner, the liberal FDP, missed the 5% threshold and will for the first time ever have no seat in parliament. At the same time, the anti-euro party, the Alternative for Germany, had an impressive performance, gaining 4.7% of all votes. At the beginning of the evening, an absolute majority for Angela Merkel seemed possible. With the official preliminary result, however, the next government can only be a grand coalition of CDU and SPD or CDU and Greens. The theoretically possible option of SPD, Greens and Linke has repeatedly been ruled out by both the SPD and Greens, and again last night. The other theoretical option, new elections, is also very unlikely in Germany. All of this means that the Germans will very likely get the coalition they have been looking for, at least according to latest surveys. This is a so-called CDU and SPD grand coalition. It is in fact the only realistically possible combination. Negotiations, however, will not be easy. The next government has a unique opportunity to use the current economic good times to ensure Germany’s leading position beyond current growth success. For a long while, Germany has benefited from the earlier reforms of the mid-2000s under former chancellor Schröder and, quite paradoxically, fiscal stimulus during the first part of the financial crisis under Merkel’s first government. Examples of this include car scrap schemes and subsidised short-term work schemes. In recent years, zealousness for reform has clearly slowed down. Therefore, it does not come as a real surprise that in OECD studies Germany often stands at the bottom of the list when it comes to newly implemented reforms. In our view, the biggest challenges for any new German government are to ensure that the economy remains the powerhouse of the Eurozone and can keep its leading position in world markets. To this end, the economic good times should be used to tackle important policy issues such as ageing and pension, investment and innovation, the final shift to renewable energies, and Europe. Germany is still amongst the fastest ageing economies of all European countries. Despite earlier reforms and increased retirement ages, the pension and health care systems are still under pressure. There is a lack of qualified workers in the health and elderly care sector and there have been recent discussions on civil servant pensions. Moreover, the new German government should not be complacent and should use the still-good economic times to invest in the future. Over the last decade, Germany has created a widening investment gap, both for public and private investments. Possible areas for investments are, for example, infrastructure (railways, highways), the expansion of broadband networks, and also energy transformation (including storage systems and smart grids). Energy transformation as such will of course also require significant attention. The shift from nuclear power to renewable energies is far from being finalised. In the short term, a possible coalition of CDU and SPD would clearly have to deal with campaign differences on whether to increase or cut taxes and what kind of minimum wage the country needs. Beyond these issues, however, a grand coalition would have a broad base in parliament, and, equally important, in the Upper House (Bundesrat) to bring forward necessary investment projects, further reforms of the pension system and next steps towards further Eurozone integration. For the Eurozone, a grand coalition would probably continue the current crisis management but with a softer hand. Eurobonds are unlikely but some new European investment initiatives and a soft push towards hidden burden sharing could be the result of a grand coalition. Even a kind of redemption fund, a Eurozone bank resolution fund and far-reaching integration could eventually enter the Eurozone’s centre stage with a grand coalition. All in all, a dull election campaign ended with a big bang and an election evening which made history. Germany has not become a political monarchy but Queen Mutti remains the undisputed political leader.

Friday, September 20, 2013

Monday's thoughts post-Bavaria and pre-federal election thoughts

Link to our ING publication. http://pull.xmr3.com/cgi-bin/pull/DocPull/271-172966-E9CF/22063274/2013081610013359_E.pdf

Wednesday, September 11, 2013

Gapend over de finish

Gapend hang ik over mijn eigen column. De Duitse verkiezingen zijn zo saai als de wedstrijd van Die Mannschaft tegen de Faeröer-eilanden. Alles is eigenlijk wel tot op het bot geanalyseerd en ongeïnspireerde campagnes laten heel Duitsland langzaam indommelen. Toch zegt mijn buikgevoel dat het eindspel spannend zal worden. 

 Verkiezingen in tijden van een goed draaiende economie zijn bijna nooit opwindend en de campagnetijd in Duitsland is behoorlijk saai. De enige grote thema's waar de twee kanshebbers op het kanselierschap zich echt onderscheiden zijn het wel of niet invoeren van een minimumloon en de verlaging of verhoging van de belastingen. Andere thema's, zoals Europa, komen nauwelijks ter sprake of blijven bij de meeste Duitsers niet hangen. 

 Otto Normalverbraucher ligt dus niet wakker van de verkiezingen. Merkel wel. Niettegenstaande zij volgens de peilingen nog steeds ruim voorligt op haar tegenstander Peer Steinbrück (SPD), is er een kentering zichtbaar. Gedoodverfde winnaars in peilingen krijgen tegen het einde van campagnes altijd te maken met kiezersmoeheid. Volgens mij zijn er minstens drie redenen waarom de verkiezingsuitslag op 22 september nog veel mensen zou kunnen verrassen: Beieren, het televisieduel en het verleden.   

Wat veel niet-Duitsers niet weten, is dat er aanstaande zondag al wordt gestemd in Beieren, waar de nieuwe deelstaatregering moet worden gekozen. Merkel kan in Beieren eigenlijk alleen maar verliezen. Op dit moment lijkt het erop dat de CSU, de Beierse zusterpartij van Merkels CDU, de volstrekte meerderheid haalt en de liberale FDP de kiesdrempel van 5 procent niet haalt. Goed nieuws voor Merkel, zou je denken. Maar neen. Zo'n uitslag wiegt Merkel-stemmers nog verder in slaap - aangezien hun stem niet meer nodig lijkt voor de overwinning - en duwt strategische kiezers mogelijk naar de FDP. Een onverwacht goed resultaat voor de SPD geeft Steinbrück een beslissend duwtje in de rug. 

 Sinds het grote televisieduel tussen Merkel en Steinbrück ruim een week geleden is er een eigenaardige sfeer ontstaan in Duitsland. Er zijn kleine tekenen van een kentering. Terwijl Angela Merkel recentelijk nog de onaantastbare regentes van Duitsland was, zijn er nu meer en meer stemmen en publicaties met een duidelijk kritischer toon. De terughoudende en soms aarzelende stijl van Merkel wordt ineens openlijk aangevallen. Misschien is het alleen een stormpje in de media om de kijkcijfers op te krikken. Maar misschien is het toch meer.

 Een blik op de geschiedenis laat zien dat Merkels CDU sinds 1998 in de verkiezingsnacht nooit zo veel stemmen haalde als een maand ervoor werd voorspeld in de peilingen. Het onbesliste televisiedebat heeft bij de oppositie de hoop aangewakkerd dat de geschiedenis zich herhaalt. 

 Die Mannschaft heeft dinsdag met ongeïnspireerd spel nog ruim gewonnen en gaat gapend richting WK. Merkel haalt de overwinning zeer waarschijnlijk ook, maar met meer angstzweet dan verwacht. 

  Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

Letter from Brussels: Hilfe von Goethe

Für ihre Arbeit müssen die Frankfurter Zentralbanker Datenreihen analysieren und wissenschaftliche Papiere lesen. Um die neueste Herausforderung zu bestehen würde der EZB ein einfacher Griff zu Goethe helfen. Die EZB ist einfach nicht zu beneiden. Die Rezession im Euroraum ist endlich beendet, da steht schon ein neues Problem vor der Tür: steigende Kapitalmarktzinsen. Der langsame Abbau der lockeren Geldpolitik in den USA und übertriebene Erwartungen der Märkte über den bevorstehenden europäischen Aufschwung haben das Potential, den leichten Aufschwung des Euroraums ziemlich schnell im Keim zu ersticken. Zur Bekämpfung dieser neuen Bedrohung gehen der EZB leider die Instrumente aus. Eine weitere Senkung des Leitzinses ist im Anblick der letzten Konjunkturindikatoren nicht mehr zu rechtfertigen. Was bleibt, ist also der letzte Trumpf der Zentralbanken: Kommunikation. Wie Magier versuchen die Notenbanken auf der ganzen Welt in diesen Wochen die Finanzmärkte mit Worten zu zähmen. Die EZB scheint dabei ihre magischen Wirkungen dabei am höchsten einzuschätzen. Sie handelt ganz nach dem Motto „warum einfach, wenn es auch schwierig kann“ und koppelt das Versprechen niedriger Leitzinsen nicht an ökonomische Indikatoren. Das Prinzip, sich niemals festlegen zu wollen, bleibt heilig. Diese Prinzipientreue könnte sich noch als fauler Zauber entpuppen. Was, wenn die Inflation wegen höherer Ölpreise wieder anzieht? Oder was, wenn die deutsche Unmut über zu niedrige Leitzinsen weiter zunimmt? Märkte vergessen schnell und der Glaube in gegebene Versprechen kann schnell verfliegen. Warum folgt die EZB also nicht der amerikanischen, britischen oder japanischen Notenbank und koppelt ihr Versprechen niedriger Leitzinsen z.B. an die Kerninflation oder sogar an die Arbeitslosigkeit? Ein solcher Schritt würde den Euroraum gegen unnötige steigende Kapitalmarktzinsen schützen können. Es könnte so einfach sein. Denn schon Goethe wusste: in der Beschränkung zeigt sich der Meister. Diese Kolumne erschien am Wochenende in der "Euro am Sonntag"

Thursday, September 5, 2013

ECB meeting - more of the same

It was not exactly a surprise when the ECB today announced to keep its interest rates unchanged. And judging from the press conference, the ECB has not suddenly become wildly optimistic. The easing bias remains in place.
If anything, macro-economic developments since the last meeting have improved. Still, the ECB is far from becoming over cheerful. In fact, the ECB’s macro-economic assessment was only a taking-stock of latest developments but not a change in expectations. A particular green shoot according to Draghi was the fact that domestic demand was the main driver of the growth pick-up in the second quarter. In terms of wording, the former “stabilisation in economic activity” has become “a gradual recovery”. Interestingly, this change in wording was not really reflected in the last ECB staff projections. As regards growth, the ECB staff revised its projections upwards for this year to -0.4% (from -0.6%) and downwards for next year to 1.0% (from 1.1%). As regards inflation, ECB staff now expect 1.5% this year (from 1.4%) and 1.3% (unchanged) for next year.

Notably, Draghi remarked that he couldn’t share enthusiasm about the recovery. According to him, the shoots were “very very green”. Risks to the economic outlook were still on the downside. In fact, next to the traditional risks like “recent developments in global money and financial market conditions and related uncertainties” and the lack of structural reforms, a new downside risk was presented: higher commodity prices in the context of renewed geopolitical tensions. Moreover, Draghi seemed to be concerned about the recent reduction of excess liquidity and its potential impact on money market conditions. The ECB will remain “particularily attentive” on liquidity developments. In our view, a clear hint that new liquidity injections and an extension of the full allotment procedures beyond July 2014 are still valid policy options for the ECB.

With the still rather pessimistic economic outlook, new potential downside risks and concerns about money market developments, it did not come as a surprise that Draghi confirmed the ECB’s easing bias and the fact that “rates will remain at present or lower levels for an extended period of time”. Judging from his comments on possible discussions on a rate cut today, a rate cut seems to be off the table for the time being but it is not in the trash bin, yet.

As expected, there were many questions on the ECB’s formulation of forward guidance. Up to now, the ECB’s forward guidance has differed from other central banks by not linking it to an economic variable. Listening to Drgahi today, we have the feeling that this will not change in the near future. The ECB is still very reluctant to go all the way. Instead, Draghi gave other clear hints at what market participants should look in the coming months. Remarks like “our mandate is to maintain price stability” or “we look at headline inflation not other definitions of inflation” sent a clear message that interest rates will not move as long as headline inflation forecasts remain comfortably below 2%. The inflation forecast of 1.3% for 2014 is currently probably the strongest argument in favour of unchanged rates. However, eventually the ECB could still be pushed into a situation in which it has to follow its other central bank peers. Just think of a possible oil price shock.

All in all, today’s ECB meeting just confirmed what we already knew. Rates will remain low for a long while but “forward guidance – the ECB-style” remains a shaky concept. If the ECB ever decide to release minutes, the minutes of today’s meeting will definitely not be in great demand.
 

Tuesday, August 27, 2013

German good-news-show continues

More good news. The German economy continues surfing on the waves of optimism. Today’s Ifo index fits perfectly into the set of positive and encouraging latest macro data. Germany's most prominent leading indicator, measuring business sentiment, increased to 107.5 in August, from 106.2 in July. Both, the expectation and the current assessment component improved, providing further signs that fears of a sharp slowdown in the second half of the year should have been overdone.

To the contrary, prospects for the German economy remain good. The gradual filling of order books since the beginning of the year combined with some inventory reductions bodes well for industrial production in the coming months. Moreover, the recoveries of the US and UK economies, signs that the Chinese landing is a soft rather than a hard one and the tender stabilization of the Eurozone economy should support German exports. At the same time, with the wage increases of the last two years and record-low unemployment private consumption should also remain an important growth driver. The great unknown for the German growth outlook is private investment. The increase in the second quarter was welcome news but it is too early to tell whether this investment recovery is here to last.

With the economy cruising along rather smoothly, all eyes will move to the upcoming elections on 22 September. Latest opinion polls show that the result of the elections is still far from certain. In fact, it could become a neck-and-neck race between the current coalition (Angela Merkel’s CDU and her liberal coalition partner) and the two major opposition parties (the social-democrats with Merkel’s challenger for the chancellery, Peer Steinbrueck, and the Green Party). According to latest polls, Merkel’s coalition enjoys a lead of around 5 percentage points but does not have enough votes to form the next government. So far, the election campaign has been rather dull. This should change in the next weeks. However, with the latest economic data, it will be very hard to make Germany’s economic performance part of the campaign. Contrary to a famous campaigning slogan from Bill Clinton, it is not the economy which will decide the German elections, stupid...

Thursday, August 22, 2013

German economy powering ahead

Today’s PMIs provide further evidence that the German economy is rather gaining than losing momentum. The flash composite index increased to 53.4 in August, from 52.1 in July; its highest level since January. PMI services increased to 52.4, from 51.3, while the PMI manufacturing improved 52.0, from 50.7 in July. The PMI manufacturing currently stands at its highest level in more than two years. After the strong second quarter, many observers had predicted a quick slowdown of the German economy in the second half of the year. Up to now, it looks as if the economy is gaining rather than losing momentum. German confidence is not only benefitting from strong domestic economic activity and hopes of a soft and not a hard landing of emerging economies but also from the latest improvements in the Eurozone. It looks as if new growth hopes for the rest of the Eurozone are stimulating German confidence, which in turn could lead to higher German economic growth and could eventually become growth-supportive for the Eurozone. Obviously, it is far too early to call this the beginning of a virtuous circle but the current positive – at least psychological – interaction between Germany and its Eurozone peers could set off positive knock-on effects. Turning back to the German economy, today’s PMIs indicate that the Eurozone’s biggest economy is powering ahead. The expected slowdown after the exceptionally strong second quarter should be mild. Against the background of strong economic growth, the latest excitement in the German election campaign could also quickly disappear again. As long as most Germans are not personally affected by the euro crisis, disgust about a possible third bailout package for Greece should, in our view, abate quickly.

Tuesday, August 13, 2013

Germany's strong growth comeback

Popping the corks. The German economy has staged an impressive comeback in the second quarter of this year. According to the first estimate of the German statistical office, the economy grew by 0.7% QoQ. After a downward revision, the economy now stagnated in the Q1. On the year, German GDP is up by 0.9%. The individual growth components will only be released on 23 August but available monthly data and the statistical office’s press release suggest that growth was broadly driven by consumption, net exports and investment, with the catching up of the construction sector playing an important role.

Today’s GDP numbers mark the end of a long rollercoaster ride of the German economy. Since the start of the year, German macro data has been highly erratic. Harsh and persistent winter weather, early Eastern, public holidays and vacation frequently blurred the data. While Q1 figures understated the real strength of the economy, today’s numbers are somewhat too exaggerated. Looking ahead, the German economy should settle down to a growth rate of around 0.4% QoQ in the second half of the year. Such a growth path would be consistent with continued solid consumption driven by low unemployment, a further pick up of the US and UK economy and a soft landing of the Chinese economy.

The biggest domestic challenge remains weak investment. Despite very favourable financing conditions and strong international positions of many German companies, domestic investment has been sluggish for a longer while. Reasons behind the weak investment performance have been a preference for foreign rather than domestic investments in the private sector and a significant reduction of public investments. One way or the other, the next German government will have to address the issue of domestic investment to ensure Germany’s leading economic role.

At least for the time being, the German economy has returned as the big stronghold, not only for the Eurozone but this time around even for the global economy. Up to now, Germany has outperformed most of its G7 peers, at least in the second quarter. For the Eurozone, this morning’s numbers are also good news. Thanks to Germany, the entire Eurozone should have left the record-long recession.  Of course, the Eurozone still has a long way to go before positive growth numbers can honestly be called recovery but relief should stand above skepticism, at least for one day.

Peer Steinbrueck en Die Aerzte

Een van mijn muzikale klassiekers is 'Zu spät' (te laat) van de Berlijnse rockband Die Ärzte. Het is een lied over wraak na een versmade liefde. De droom van elke underdog, ooit laat je alle vernederingen en blamages achter je en laat je de hele wereld je grootsheid zien. Het is een lied dat op dit moment de gemoedstoestand van Peer Steinbrück, de politieke uitdager van bondskanselier Angela Merkel, goed weergeeft.

Een blik op de Duitse verkiezingscampagne laat zien dat het voor Steinbrück en zijn SPD niet meezit. Integendeel. Het zit eigenlijk vies tegen. Alles wat mis kan gaan, gaat mis. De eerste verkiezingsposters bleken niet bestand tegen regen. De tweede oplage die weer en wind trotseert, is een wanhopige poging om Merkel onder de gordel te raken, maar bereikt het tegendeel. Duitsland houdt niet van 'negative campaigning'. Daarnaast brak afgelopen week een goed bedoelde documentaire over Steinbrück op de Duitse buis het record weg-zappers. En tot overmaat van ramp voor de SPD, heeft de regering van Merkel voor het eerst sinds de verkiezingen in 2009 weer de meerderheid in de opiniepeilingen.

De verkiezingen lijken voor Steinbrück en zijn SPD al een gelopen race. Maar dat hoeft zo niet te zijn. De grote afrekening komt pas op 22 september en Steinbrück heeft nog steeds kansen om zich te ontpoppen van lachnummer tot verkiezingswinnaar.

Hoe dan? Met hulp van de één derde nog onbesliste zwevende Duitse kiezers. Een groot deel van die kiezers heeft in het verleden al eerder SPD gestemd. Zij vormen een groot overwinningspotentieel. Of die mensen met een anti-Merkelcampagne naar de stembussen kunnen worden gelokt, is twijfelachtig. Als Steinbrück wil winnen, zal hij zijn campagne moeten omgooien. De tactiek van zijn campagne is nu Angela Merkel persoonlijk aan te vallen. Dat zal niet werken. De Duitsers houden te veel van Angie. Steinbrück kan alleen verschil maken op inhoud. Waarom presenteert hij zich niet als duidelijk alternatief voor een ander beleid? Bijvoorbeeld als voorstander van een Griekse schuldkwijtschelding na de verkiezingen? Of een tweede Portugese reddingspakket met afschrijvingen bij particuliere obligatiehouders? Of als iemand die ziet dat de sterke Duitse economische groei van het moment snel verdwijnt als de grote investeringsachterstand niet snel wordt weggewerkt. Waarom pleit Steinbrück niet voor een initiatief voor publieke en particuliere investeringen in bijvoorbeeld infrastructuur, energie, scholen en kennis? Het lijkt wel alsof Steinbrück niet durft te winnen.

In het lied van Die Ärzte wordt de sukkel later een superheld, die de harten van alle meisjes breekt. Een hartenbreker zal Steinbrück niet meer worden, maar met meer durf kan hij zeker nog zes weken van een verkiezingsoverwinning blijven dromen.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd"

Wednesday, August 7, 2013

Industrial production points to strong growth comeback of German economy

Impressive comeback. The German economy is on a good way towards an impressive growth comeback in the second quarter. Industrial production increased by 2.4% MoM in June, after an 0.8% MoM drop in May. The increase in production was broadly-based across all sectors. Production in the construction sector increased by 1.6% MoM. Compared with 1Q 13, industrial production was up by 3.4% in 2Q.
 
Slowly but surely industrial activity has returned as an important growth driver for the German economy. Since the turn of the year, inventories have remained rather stable, while new orders have gradually picked up. Moreover, the construction sector has staged – the expected – comeback after the harsh winter. Yesterday’s new order data confirmed that the industrial engine will not run out of fuel any time soon. A monthly increase by almost 4% was rather impressive. In fact, improving new orders is not a one-off.  Order books have gradually thickened over the last six months with a quarterly increase of 0.5% QoQ in 1Q 13 and 1.2% QoQ in 2Q.

It looks as if the German economy is again walking on two feet: solid private consumption and strengthening industrial activity. Looking ahead, the biggest short- and medium-term risks for the German economy seem to stem from a further softening of economic activity in emerging economies, above all China, and a longer-lasting economic slump in Germany’s main trading partner: France.

Moreover, another pressing issue for the German economy is weak domestic investment. Yesterday, in its latest Article IV report, the IMF linked weak domestic investment to the euro crisis and falling German exports to Eurozone peers. In our view, there is more to German investment weakness than the euro crisis. In fact, weak domestic investment is not only a recent phenomenon but has been accompanying the German economy for much longer, driven by a preference for foreign rather than domestic investments in the private sector and a significant reduction of public investments. One way or the other, the next German government will have to address the issue of domestic investment to ensure Germany’s leading economic role.

With this week’s data a long rollercoaster ride of the German economy is coming to an end. Since the start of the year, German macro data has been highly erratic. Harsh and persistent winter weather, early Eastern, public holidays and vacation frequently blurred the data and required an extra portion of gut feelings to look through short-term fluctuations. The month of June was the first noise-free month; the month of truth. Data released so far has been very promising, sending two messages: i) the German economy should have staged an impressive growth comeback in the second quarter (with growth somewhere between 0.6% and 0.8% QoQ); and ii) such a comeback could be sufficient to have pushed the entire Eurozone out of the recession.

Tuesday, July 16, 2013

July ZEW sends mixed message

No further guidance. Today’s ZEW index has something for everyone. The ZEW index which measures investors’ confidence dropped unexpectedly to 36.3 in July, from 38.5 in June. At the same time, however, investors have become more positive on the current economic situation. The current assessment component increased to 10.6, from 8.6 in June. The first increase after three consecutive drops.

Today’s ZEW index fits into the current picture that the German economy looks like a grab bag, which has something for everyone. It has something for everyone. For the optimists, there is the strong labour market, solid private consumption, strong construction growth and confidence indicators at high levels. At the same time, however, there are dropping new orders, disappointing exports and the continuing euro crisis for the pessimists.

Admittedly, new dark clouds have started to black out growth prospects of the German economy. These clouds are not coming from the South but from the East. The stuttering and now slowing Chinese economy is a clear cause of concern. could become a new risk factor for the German economic outlook. China has become the fifth most important market for German exporters, accounting for roughly 6% of total exports. Obviously, a Chinese hard landing would not leave the German economy unharmed. In the short run, however, the stronger-than-expected recovery in the US and the UK should at least partly cushion a negative Chinese impact. Particularly the US could come to the German rescue. Over the last three years, the US has returned as Germany’s second most important trading partner.

Today’s ZEW index had something for both pessimists and optimist. The truth is probably somewhere in the middle: the German economy remains solid but we will have to get used to annual growth rates of around 1% and not 3%. With such growth rates, it won’t be the economy which decides the September elections but other issues. The latest spying affair and increasing domestic political pressure on the government could be a bigger game changer in the coming weeks. It is almost an irony of fate that exactly in this situation Germany seems to need the US economy more than ever.