Taking the pulse of the German economy - Growth is bottoming out at low levels. Downside risks due to the outbreak of a new coronavirus - Hamburg ...
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Taking the pulse of the German economy Growth is bottoming out at low levels. Downside risks due to the outbreak of a new coronavirus. Economics, February 2020
Executive summary
- The German economy has shown a growth rate of only 0.6% in 2019 and will continue to grow at a similar rate this year
(0.6%, working-day adjusted; 1.0%, not working-day adjusted)
- The global growth environment has been characterised by a slow pace. Now, there are some signs of bottoming out. The
hard data for the global industry indicate that the global recession of this sector may have ended in Q4-2019.
- The main risk factor for the global environment is currently the new coronavirus, especially for China, which is among the top
3 destinations for exports in general and cars in particular.
- The main drivers of the German downturn of last year have been net exports, a lower build up of inventories and weak
investment spending. While some leading indicators point to a stabilization, there are no signs of a significant rebound in
exports and investment spending.
- Sectorwise we can see a two-speed economy with the manufacturing sector in recession since mid-2018 and the service
sector solidly growing (with some moderation). The construction sector has lost some dynamic. However, its activity level
remains elevated.
- The labor market shows some signs of a weakening: While the unemployment rate has remained rather low at 5%, ‚short-
time work‘ has increased significantly which is usually a sign of some deterioration.
- Consumer price inflation has picked up a little bit during the upturn of the last years und is higher than the euro area
average. However, inflation is still below the euro area target of below, but close to 2%.
- Credit growth has been rather healthy at around 4% YoY, while the bank lending survey indicates that banks are reluctant to
tighten credit conditions.
- Yields should increase only very moderately meaning that financial conditions should remain very accommodative.
2 2/5/2020 Taking the pulse of the German economyGlobal environment 3 2/5/2020 Taking the pulse of the German economy
Global view: no clear signs of an end to weakness in the manufacturing
sector
ISM/PMI-Indices manufacturing sector in Jan (Index > 50 = Improvement of economic situation in comparison to month before, Index < 50 = worsening)
Nigeria 56,8
India 55,3
Greece 54,4
Kenya 53,3
Myanmar 52,7
Hungary 52,5
Taiwan 51,8
Sweden 51,5
Ireland 51,4
Turkey 51,3
China 51,1
Brazil 51
France 51
Norway 50,92
Vietnam 50,6
Canada 50,6
Singapore 50,3
Switzerland 50,2
Netherlands 49,9
South Korea 49,8
UK 49,8
New Zealand 49,3
Indonesia 49,3
Austria 49,2
Malaysia 48,8
Japan 48,8
Spain 48,5
Egypt 48,2
Russia 47,9
Poland 47,4
USA 47,2
Italy 46,2
Australia 45,4
South Africa 45,2
Czech Republic 45,2
Germany 45,2
Mexico 45
.0 43.1 45.1 47.1 49.1 51.1 53.1 55.1 57.1 100.0 40 45 50 55 60
50.0
Source: Bloomberg, Markit, HCOB Economics
4 2/5/2020 Taking the pulse of the German economyWorld GDP: growth is slowing down. Neither signs of near-term
rebound nor a free fall.
GDP growth is decelerating since six quarters in a row.
Note: The 28 countries + EU cover almost 90% of World GDP. Therefore, they show quite accurately the growth dynamics of the global economy. However, when these figures are used to derive annual
growth rates from them, some deviations occur compared to figures published by the IMF.
5 2/5/2020 Taking the pulse of the German economyGlobal industrial sector more or less in stagnation. While global industry is showing some improvement in Q4, global trade has shrinked during this period, very likely. 6 2/5/2020 Taking the pulse of the German economy
Global PMI: Services still show some robustness in comparison to industrial sector. There are tentative signs of stabilisation in the manufacturing sector at a low level. 7 2/5/2020 Taking the pulse of the German economy
Global growth seems to stabilize on lower levels in almost all regions.
The most important risk factor is currently the impact of the new coronavirus. We have adjusted China growth to 5.6% (from 5.8%).
Historical GDP growth rates and forecasts
1,5
1,2
0,6 0,6
2018 2019 2020 2021
Germany
1,9
1,2 1,3
1,0
0,9
2,9 0,7
6,6 6,2 0,5
2,2 5,6 5,6 0,4
1,9
2018 2019 2020 2021
1,0
2018 2019 2020 2021
Euro Area
2018 2019 2020 2021 Japan
2018 2019 2020 2021
3,0 3,3
USA 6,2
2,0 1,7 China
5,8
5,5
2018 2019 2020 2021 5,3
2,3 Africa + Middle East
1,6
1,0 2018 2019 2020 2021
0,6 3,6
3,0
3,3 Emerging Asia ex
3,0
China
2018 2019 2020 2021
Latin America
2018 2019 2020 2021
Source: HCOB Economics, Macrobond, IWF
World
8 2/5/2020 Taking the pulse of the German economyImplications from new coronavirus
for the German export sector
9 2/5/2020 Taking the pulse of the German economyAround 7% of total exports from Germany go to China. The export structure of Germany is well diversified in geografic terms. 10 2/5/2020 Taking the pulse of the German economy
German exports to China correspond to almost 3% of German GDP. The indirect effect (main export destinations with high exposure towards China) is moderate. 11 2/5/2020 Taking the pulse of the German economy
Machinery & transport equipment is the main sector which would suffer from a slowdown in China. 12 2/5/2020 Taking the pulse of the German economy
German economy 13 2/5/2020 Taking the pulse of the German economy
‚Consensus Economics‘ forecasts show a slight uptick in GDP growth.
However, pessimism prevails with regard to the manufacturing sector including machinery & equipment. Stabilization comes from
private consumption.
Jan 2019 Jan 2020 Jan 2019 Jan 2020
Jan 2019 Jan 2020
Source: HCOB Economics, Macrobond, Consensus Economics
14 2/5/2020 Taking the pulse of the German economyGerman economy has escaped barely a technical recession. Dynamics will continue to be weak. Growth over the whole year 2020 should be at around 0,6 % (working day adjusted). 15 2/5/2020 Taking the pulse of the German economy
Exports, capital spending, private
consumption and public spending
16 2/5/2020 Taking the pulse of the German economyGrowth has been dragged down by a weak performance of exports and a low level of inventory build-up. 17 2/5/2020 Taking the pulse of the German economy
Private consumption and public spending stabilized GDP growth, while investment spending has cooled down significantly. 18 2/5/2020 Taking the pulse of the German economy
Exports: some stabilization There has been some stabilization in current figures as well as early indicators, like Ifo survey and new orders. The fading risks from the US-China trade war and Brexit are positive news. However, as long as the weakness in the global industrial sector goes on, it will be difficult for the German export sector to regain strength. Some uncertainty stems also from the possibility of a US-EU trade war and, more importantly, the new coronavirus. 19 2/5/2020 Taking the pulse of the German economy
Exports: „only moderate help from our friends“. Main trading partners should show similar growth as last year which means that no significant acceleration in German exports should be on the cards. Obviously, the export channel is the most vulnerable one with respect to the new coronavirus, which is about to curb Chinese growth in a noticeable way. 20 2/5/2020 Taking the pulse of the German economy
Capital spending: no stimulus from this side. A third of capital spending goes into machinery and equipment, which obviously suffer from global industrial recession. Construction related capital spending should be helpful to avoid a steep fall in overall capital spending. 21 2/5/2020 Taking the pulse of the German economy
Capital spending: intentions to invest have fallen significantly. Profits have gone down in H1-2019 which does not bode well for capital spending. 22 2/5/2020 Taking the pulse of the German economy
Private consumption: consumer spending should remain rather robust. Robustness is based on high consumer confidence, still positive employment development, a solid wage increase, low debt ratios and rather high saving ratios of private households, the latter both constituting a buffer against any upcoming negative income shock. 23 2/5/2020 Taking the pulse of the German economy
Public spending: plenty of room to spend more (theoretically) However, the ruling coalition will not make use of the fiscal leeway unless Germany falls into recession (which is not our base case scenario). 24 2/5/2020 Taking the pulse of the German economy
Sectorwise: which sectors are
drivers of economic activity?
25 2/5/2020 Taking the pulse of the German economyExpectations have worsened in almost all sectors according to Ifo. The current situation is better than the expectations of surveys. 26 2/5/2020 Taking the pulse of the German economy
Manufacturing: broad weakness The machinery and the motor vehicles sectors haven been in recession since 2018/2019. Bottoming out in 2020 to be expected. Change in output, QoQ. Pink shaded areas = recession defined as two quarter in a row shrinking output. The latest monthly figures are taken as estimate basis for the last Quarter 27 2/5/2020 Taking the pulse of the German economy
Services sector: Services hold up quite well. Services will take advantage from relatively robust private consumption. 28 2/5/2020 Taking the pulse of the German economy
Construction: Still in good shape 29 2/5/2020 Taking the pulse of the German economy
Machinery & equipment: Stabilization at low levels While a free fall has been stopped, the signs of a rebound cannot be seen. 30 2/5/2020 Taking the pulse of the German economy
Automotives sector: production going down since end 2018 The car sector indicators sends some mixed and partly contradicting signals. 31 2/5/2020 Taking the pulse of the German economy
Automotive sector: German cars are imported increasingly from abroad. One part of explanation is that SUVs are increasingly wanted, but not produced at home. 32 2/5/2020 Taking the pulse of the German economy
Chemical sector: clear signs of a bottoming out There are many signs of stabilization. However, it would be premature to bet on a strong recovery, as new orders remain modest and capacity utilization is not particularly low. 33 2/5/2020 Taking the pulse of the German economy
Data processing, electronig & optical devices: Order situation looks good While Ifo business confidence has deteriorated, the level of new orders look okay and exports remain at a high level. 34 2/5/2020 Taking the pulse of the German economy
Construction / real estate: Ifo survey data exhibit some deceleration. 35 2/5/2020 Taking the pulse of the German economy
Construction / real estate: Some slowing down, but activity remaining on a high level 36 2/5/2020 Taking the pulse of the German economy
Construction / real estate: In the commercial real estate sector prices and rents continue to increase in most segments Affordability in the residential sector has worsened mostly, but annuity-to-income ratio does look fine. 37 2/5/2020 Taking the pulse of the German economy
Construction / real estate: Low vacancy rates point to strong demand for office space. However, some deterioration in the labor market means that we should expect a bottoming out followed by an increase, assuming economic growth to accelerate in 2021 at the earliest. 38 2/5/2020 Taking the pulse of the German economy
Services: mood in the services sector has cooled somewhat. However, optimism still prevails in most sectors, as most ifo-survey balances are strongly in positive territory. 39 2/5/2020 Taking the pulse of the German economy
Labor market and inflation 40 2/5/2020 Taking the pulse of the German economy
Labor market: overall the labor market looks rather robust.
Employment is still increasing and so do wages. However, not all is rosy (next slide).
41 2/5/2020 Taking the pulse of the German economyLabor market: some signs of deterioration
Short-time work (Kurzarbeit) and unemployment have increased while unfilled vacancies have fallen. However, unfilled vacancies
are on a rather high level. Therefore, to expect a steep increase in unemployment does not look to be justified.
42 2/5/2020 Taking the pulse of the German economyInflation: prices have increased at a higher rate, but inflation remains subdued. Given the weak growth environment and structural factors at work (demografics and digitalization) inflation will remain low for the foreseeable future. 43 2/5/2020 Taking the pulse of the German economy
Loan activity, interest rates 44 2/5/2020 Taking the pulse of the German economy
Loan activity: credit growth above euro area average. German banks are neither tightening nor loosening credit standards according to latest bank lending survey. 45 2/5/2020 Taking the pulse of the German economy
Interest rates: Bund yields will remain below zero at least during 2020. 46 2/5/2020 Taking the pulse of the German economy
Policy rates: ECB will stay put for the time being. ECB-president Christine Lagarde will continue the accomodative monetary policy of its predecessor. 47 2/5/2020 Taking the pulse of the German economy
EUR/USD should appreciate in our base scenario of two further Fed rate cuts in 2020. 48 2/5/2020 Taking the pulse of the German economy
Agenda 2020 49 2/5/2020 Taking the pulse of the German economy
Forecasts
GDP change Inflation
Economic activity 2019 2020 2021 2019 2020 2021
Euro area 1,2 1,0 1,3 1,5 1,2 1,4
Germany 0,6 0,6 1,2 1,7 1,3 1,4
United States* 2,2 1,0 1,9 2,0 1,2 1,5
China 6,2 5,6 5,6 2,3 2,5 2,6
World 3,0 3,0 3,3 - - -
Interest rates (eop) 04.02.2020 Jun 20 Dez 20 Jun 20 Dez 21
Euro area
Policy rate 0,00 0,00 0,00 0,00 0,00
Deposit rate -0,50 -0,50 -0,50 -0,50 -0,50
3 months Euribor -0,40 -0,45 -0,45 -0,45 -0,40
2 year Bunds -0,66 -0,65 -0,60 -0,53 -0,50
10 year Bunds -0,40 -0,40 -0,15 0,15 0,28
USA
Fed funds target rate (upper bound) 1,75 1,50 1,25 1,25 1,75
3 months Libor 1,75 1,50 1,35 1,50 1,95
2 year T-Notes 1,41 1,40 1,20 1,30 1,80
10 year T-Notes 1,59 1,65 1,80 2,00 2,15
FX 04.02.2020 Jun 20 Dez 20 Jun 21 Dez 21
EUR/USD 1,10 1,16 1,19 1,20 1,21
EUR/GBP 0,85 0,85 0,86 0,87 0,88
USD/JPY 109,19 108 105 107 109
USD/CNY 7,00 7,10 7,20 7,20 7,30
Stocks 04.02.2020 Jun 20 Dez 20 Jun 21 Dez 21
Dax 13240 13100 13600 13700 14000
Stoxx Europe 600 418 406 422 425 434
S&P500 3249 2900 2900 3050 3250
Commodities 04.02.2020 Jun 20 Dez 20 Jun 21 Dez 21
Oil (Brent) in USD/USD 55,40 55 58 65 65
Oil (WTI) in USD/Barrel 51,35 50 53 61 61
Source: Bloomberg, Hamburg Commercial Bank Economics *As inflation index the PCE core rate is considered
50 2/5/2020 Taking the pulse of the German economyContact
Editing Other contact persons at the Hamburg Commercial Bank
Economics Saving institutions & Financial Institutions
Dr. Cyrus de la Rubia Thomas Benthien
Chief Economist Phone: +49 (0)431-900-25000
Phone: 040-3333-15260
Sales Corporates & Real Estate
Editorial deadline: February 04, 2020
Stefan Masannek
Phone: +49 (0)431-900-25550
Gerhart-Hauptmann-Platz 50, 20095 Hamburg, Phone: +49 (0)
40-3333-0, Fax 040-3333-34001
Sales Shipping, Energy & Infrastructure
Stefan Masannek
Phone: +49 (0)431-900-25550
Debt Capital Markets
Tim Boltzen
Phone: +49 (0)40-3333-13765
51 2/5/2020 Taking the pulse of the German economyDisclaimer The market information contained in this presentation is for informational purposes only. It can not substitute own market research or separate legal-, tax- and financial- advice and infor-mation. This information is a marketing communication by the meaning of Section 63 Paragraph 6 German Securities Trading Act [“Wertpapierhandelsgesetz”, “WpHG”] and Article 24 Paragraph 3 of the Directive 65/2014/EU. This information does not contain ‘information recommending or suggesting in investment strategy’ or ‘investment recommendations’ (“investment research”) by the meaning of Sec-tion 2 Paragraph 9 Point 5 WpHG or Article 3 Paragraph 1 Point 34 and Point 35 of the Regulation (EU) No. 596/2014. Therefore this information is not prepared in accordance with legal requirements designed to promote the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. This presentation does not constitute an offer to buy or sell certain assets. Hamburg Commercial Bank AG points out that the herein published market information is only meant for investors with own economical experience, who are able to evaluate the risks and chances of the herein discussed market / markets and who are themselves able to conduct research through a variety of sources. The statements and data contained in this presentation are based on either thorough re-search by Hamburg Commercial Bank AG or on sources that are considered reliable but cannot be verified. Hamburg Commercial Bank AG regards the sources used as reliable but can not assess their reliability with absolute certainty. Single pieces of information could only be assessed regarding their plausibility; an assessment regarding their accuracy has not been made. Furthermore, this presenta-tion contains estimates and predictions based upon numerous assumptions and subjective evalua-tions made by Hamburg Commercial Bank AG as well as outside sources. This information is only meant to provide non-binding perceptions of markets and products as of the time this presentation was issued. Hamburg Commercial Bank AG and its respective employees thoroughly conducted work on this presentation but can not guarantee completeness, actuality and accuracy of the provided information and predictions. This document may only be distributed in compliance with the legal regulations in the respective coun-tries and persons obtaining possession of this document should inform themselves about and com-ply with the applicable local regulations. This document does not contain all material information needed for economic decisions and the in-formation and predictions provided can vary from those made by other sources / market participants. Hamburg Commercial Bank AG as well as their organizational bodies and employees can not be held responsible for losses resulting from the use of this presentation, its contents or for losses which in any way are connected to this presentation. Hamburg Commercial Bank AG points out that it is not allowed to disseminate this presentation or any of its contents. Damages to Hamburg Commercial Bank AG resulting from the unauthorised dis-semination of this presentation or any of its contents have to be compensated for by the dissemina-tor. The disseminator has to keep Hamburg Commercial Bank AG free from all claims arising from the unauthorised dissemination of this presentation or any of its contents and all legal cost in connection with those claims. This particularly applies to a dissemination of this presentation to U.S. Persons or persons situated in United Kingdom. 52 2/5/2020 Taking the pulse of the German economy
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