Germany

Columnist Jeroen Blokland takes a look at persistently declining industrial production in Germany.

Despite ominous forecasts, the German stock market is also participating unhindered in the rally that most markets saw in October. The DAX index rose 8.4 per cent last month.  This is striking, as virtually all indicators point to a very bleak outlook for the eurozone’s largest economy. Is the German economic model faltering?

The largest economy in the eurozone is weakening. The German Dax index has been hit unprecedentedly hard in recent months. The discount that has emerged on equities presents a prime opportunity according to specialists. “The economic situation in Germany is lousy, to say the least, but the stock market looks good.”

An energy crisis is imminent in Germany. The renowned trade surplus became a trade deficit in June. Inflation is dire and consumer confidence is at an all-time low.

Germany has unexpectedly reported its first trade deficit since 1991. The reversal of the trade balance in Europe’s largest economy shows how difficult it is for German companies to handle rising costs of oil and gas. Economists at ABN Amro and Nomura meanwhile expect Europe will enter into a recession.

In a world where new powers, forces and risks are emerging, it is time to reset the EU’s common foreign and defence policy, says Joachim Bitterlich. Chancellor Helmut Kohl’s chief advisor talks to Investment Officer about what a lack of realpolitik brings about. “How do we ensure our economic independence in a world with challenges like China, Russia and Africa? It is about raw materials, trade relations, investments and avoiding dependencies.”

President Biden and Olaf Scholz, the new German Chancellor, are not on the same page regarding Nordstream 2. Biden threatens that no natural gas will flow through the pipeline if Russia invades Ukraine. But for Germany, Moscow is much closer and Scholz will realise that 40 percent of all natural gas in Europe comes from Russia.

Unlike the Netherlands, Germany is actually switching to natural gas, away from lignite and oil boilers. Meanwhile in Moscow, Macron is trying to de-escalate the issue, if only for the upcoming French elections.

In the medium term, the green transition may further fuel inflationary risks, according to ECB board member Isabel Schnabel in an interview with the Financial Times last weekend. Rising energy prices, she said, may require the ECB to do more to hold back increases. She urged portfolios to increase their investments into real assets. 

A recently-introduced German initiative to make that country a more attractive domicile for investment funds through a new regime promoting the formation of development impact funds should not pose a challenge to Luxembourg’s fund industry, has argued Maren Stadler-Tjan, investment funds partner at Clifford Chance Luxembourg.