Germany’s fading shine
The investment case for Germany is dwindling. Following the GFC, Germany’s annual growth outperformed the rest of the euro area in from 2010 to 2017 by 1.2 pp on average. That said, in 2018 German growth underperformed and is expected to do so also in 2019 and 2020.
- For several years, Germany was Europe’s powerhouse, with growth outpacing EMU peers by 1.2% (2010-17). This period has come to an end. Mounting structural headwinds require a more cautious strategic stance on the country.
- The export-led growth model will increasingly come under pressure with competition from EMs rising, the global trade order coming under pressure and the country being specialized in higher tech but not high tech goods.
- Alongside high taxes, a huge public infrastructure shortfall of € 450-500 bn dampens private investment and innovation. Key areas are public transportation and digital infrastructure. The key reason is policy failure, not the debt brake.
- The German labor force will decline by 9% over the next 20 years and total age-related costs will increase by almost 3 pp to 26.7% of GDP according to the EC. The median voter age will approach 60 years thereby hindering reforms.
- To take a more constructive strategic stance on German assets we would need to these key shortcomings being addressed.
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The team translates macro and quant views into investment ideas that feed into the investment process.