The choice is ours (2016) Official Full Version
Highest growth of Germany but the risks increase.
We expect that the German economy will grow by 1 in 2015 and 2 in 2016.
Growth was broad-based public and private consumption more, investment and net exports are all contributing to the economic recovery.
However, the risks have increased escalation of the refugee problem, the spread of emissions scandal at Volkswagen to other automakers and more negative news about the performance of the Chinese economy could affect the solid foundation of the economy German.
We expect the German economy to continue on the recent path of positive growth in 2015, we expect economic growth of 1 and 2 in 2016 positive growth forecasts are supported by many sentiment indicators see Figure 1 Feeling ESI economic indicator, the IFO indicator of business climate and the PMI purchasing managers all point to continued growth.
Table 1 Key figures Source Macrobond Germany, Rabobank Figure 1 confidence indicators indicate continued economic growth Source Macrobond.
Economic growth, we expect a large first basic private consumption in Germany to continue to increase by 2 in 2015 and 2016 households have even lower commodity prices, especially oil tight labor market German has also exerted upward pressure on nominal wages, providing strong support to real household income see Figure 2.
2 Strong increase in real wages Source Macrobond.
Second, the significant improvement in public finances makes room in the budget for higher public spending and investment This will provide an additional boost to German economic growth Influenced by negative yields on German government bonds and higher tax revenues due to the stronger economy, the government has actually booked a surplus budgetary balance 7 0 of GDP in 2014 We expect the German government to show positive budget balances in 2015 and 2016, thus, significantly lowers the ratio of public debt.
Finally, international trade developed positively in Germany, with 2 2 Growth in the volume of exports in the second quarter compared to the first quarter of 2015 we expect the favorable development of exports to offset the strong import growth driven by the high level of private consumption over the next two years, the contribution of net exports to growth up points by 2015 points and 2016 Although among major countries in the euro zone Germany has strong trade relations with China the decrease of Chinese imports earlier this year had only limited effect on global trade this is partly because the weak German exports to Asia have been largely offset by strong growth in exports to the United States, which is a more important trade partner 1 German exports are benefiting from the weak euro, which makes German products cheaper for importers outside the euro area.
Investment in Germany is still disappointing and actually contracted by 0 4 in the second quarter of this year compared to the first quarter quarter on quarter, or qoq contraction is mainly due to a 1 2 decrease QoQ of investment in the sector construction, which we consider a correction to the strong increase in investments over the previous two quarters because of the mild winter.
3 Investment growth in Germany is sluggish Source Macrobond.
The decline in German investment suits the broader picture of the sluggish growth of investment in the euro area the same time, it is remarkable in the case of Germany, in view of the positive development of its economy, growth in orders and the return of capacity utilization to normal levels after a brief dip in 2013, see Figure 3.
Given the solid foundation of the German economy, we expect investment to resume and achieve an average growth of 2 in 2015 and 3 in 2016.
An escalation of the refugee problem, the spread of fallout emissions Volkswagen at other German carmakers and more negative news about the performance of the Chinese economy are all factors that could affect the solid basis of German economy We also expect problems with regard to Greece again eventually surface because of timeliness, we will examine the first two of these issues in more detail.
More than any other European country, Germany is facing a huge influx of refugees from Syria and North Africa at the time of writing, half a million refugees have already arrived in Germany and German government expects another half million get to the end of this year, it is difficult to assess the economic impact of these vast flows of refugees on the basis of limited information currently available accordingly, we can not make a rough estimate of the implications on three lines, we will ignore the political implications for European integration and political sentiment in Europe.
While there will at first be short-term budgetary expenditures related to the management of refugees that should be paid by public means of higher taxes at the federal level or the state based on budget transfers State municipalities regarding to accommodate refugees, Deutsche Bank reported $ 9 000 per refugee per year this includes the costs of housing and health care, but not the language training costs and further integration 2 push states have already accounted for a total of 2 7 billion to support 300,000 refugees in early if, as expected, the total number of refugees arriving reached the million by end of this year, an additional 6 3 billion will be needed.
Second, there may be a negative impact on international trade if the recent European plan for the reallocation of refugees does not work as expected and countries return to step up border controls This could affect the free movement of persons, goods and services in the European Union, as stipulated in the Schengen Treaty Although these implications also have a short term effect, they could finally have a longer term effect if border controls become permanent This could increase significantly transaction costs for intra-European trade, which amounts to about half of the total value added generated by trade a recent study by Davis and Don in 2014 shows that the Schengen treaty has a significant positive effect on various estimates model 0 0 09 and 15 per year on trade between two countries that are signatories of the Treaty 3 the effect is limited, but based on the total volume of trade within the EU, it is for a commercial loss of about 3 to 5 bil lion annually.
In the medium to long term, the influx of refugees provides economic opportunities in Germany a strong reduction aging population While labor participation is expected to increase in the working age population will mean a drop in the labor force Figure 4 Labor supply is already expected to decline slightly in 2017 Ortega and Peri 2014 suggests that there is evidence that migration leads to positive effects on the employment rate, but at the same time, it slows growth productivity, resulting in a neutral effect on income per worker down productivity growth occurs because migrants often find work in non-tradable sectors such as hospitality and domestic services, which are characterized as much labor and hard work, such as hotels and restaurants, housekeeping, etc. 4 negative effect on productivity growth in the current situation, however, can be much smaller than the effects found by Ortega and Peri, as refugees from Syria ar e so-called educated relatively very 5 Influx refugees in Germany could have a positive effect on prosperity over time.
Figure 4 The supply of labor is falling because of the aging population Source UN, Eurostat, Rabobank.
It recently became known that Volkswagen has installed software in several of its diesel vehicles to manipulate the emission test results mean for the automaker are important, the company must remember that half a can million cars in the US, most sell some of its diesel models in some European countries and its stock price has been in freefall VW also faces a fine by the environmental protection agency of the United States EPA $ 16 billion were mentioned and another application was not excluded 600,000 people are involved with the Volkswagen group worldwide, and Germany 260,000 employees face an uncertain future.
The big question is whether the scandal damaged the image of the entire German automotive industry and even tarnished the brand Made in Germany generally Currently it is not yet known if other German car manufacturers and Europeans have been guilty of manipulating fuel emission testing A recent study suggests that the gap between reported emissions and fuel real cars produced in Europe increased from 8 in 2001 to 40 in 2014, with more scores 50 6 some models also the organization of the German automotive Adac showed that some diesel cars it considered released more than 10 times more nitrogen oxide NOx revealed by existing tests EU If further investigation reveals that the VW scandal is just the tip of the iceberg, this could have negative consequences for the entire European auto industry 7.
Figure 5 Share of Value Added German automotive industry and total exports amounted database Source STAN OECD, UNCTAD.
The share of manufacturing value added and total German exports generated by the German automotive industry is 14 and 17 respectively as shown in Figure 5 the same time, many service providers and suppliers are closely related to the automotive industry, it means that the effects of negative fallout from the scandal could affect a much larger part of the German economy one in seven jobs in Germany is directly or indirectly linked to the German automotive industry 8.
If the fraud is limited to VW and the company is able to settle claims against quickly and erase its brand name, the effects are likely to remain limited Toyota and General Motors had to recall models in the past due to security problems even deaths involved, but this has had little effect on the market share of these brands over time, the scandal may even have positive effects if the European car manufacturers, who have a strong focus on the development of diesel technology, decide to intensify their transition to more sustainable technologies would imply substantial investment.
1 of the total value added embodied by foreign final demand in Germany 30, China represents 2 and 3 in the United States 3.
2 Deutsche Bank, Germany Focus 1 September 2015.
3 Davis, D and T Gift 2014. The positive effects of the Schengen Agreement on the European trade, the global economy 37 11 1541-1557 pages.
4 Ortega, F and G Peri 2014, the overall effects of trade and migration data for OECD countries Springer International Publishing.
5 The numbers on the background of the refugees in Sweden show that 40 of those coming from Syria have secondary or higher education, see The Economist, Time to Go September 26 OUR 2015 Werkgevers Willen Vluchtelingen werk aan helpen 10 September 2015.
6 European Federation for Transport and Environment AISBL, Mind the Gap Closing the gap between the test and drive in the real world CO2 emissions in September 2015 of the International Council on Clean Transportation, from the laboratory to the A 2015 update the official fuel consumption and in the real world and CO2 values for cars in Europe in September 2015.
7 European car manufacturers have invested heavily in diesel and diesel cars technology represent a disproportionate share of domestic sales European automakers, compared with global sales and sales in the US See Financial Times, VW scandal began to stifle diesel automotive industry 22 September 2015.
8 Chancellor Angela Merkel made this statement, but we also found stones in such Guay, R T 2014, the business environment of Europe's businesses, governments and institutions Cambridge University Press.
Germany stronger growth, but the risks increase RaboResearch Rabobank Economic Research, Germany, above, growth risks.