The German market is the largest in Europe, attracting many of our clients. Germany has an export-driven economy, which places an even emphasis on services and production. The country offers a stable environment for investors, as well as access to the EU's domestic market. It is also world-renowned for its manufacturing in automotives, mechanical and electrical engineering, and chemicals. Our coverage – using our unique Total Analysis model – ensures that our clients make sound, risk-assessed decisions in Germany. We keep them informed of the latest market moves and political developments, supported by our interactive data and forecasting. They also benefit from in-depth analysis of 21 of Germany's most important industries, as part of our 'top-down' and 'bottom-up' perspective. It is our job to make it easier for you, as our client, to reap rewards in Germany.
Germany Country Risk
We have revised up our real GDP growth forecasts for Germany for 2015-16, with the household consumption outlook looking increasingly positive amid a strong labour market and rising confidence.
While we believe Germany's current account surplus has peaked, the narrowing of the surplus over the next five years will be limited by tight fiscal policy, which will in turn hamper the regional economic recovery.
We expect German foreign policy to become increasingly isolationist over the next few years, driven by the declining global influence of the US, changing attitudes of a younger generation and fatigue with the lack of reform among eurozone states.
Major Forecast Changes
Positive data in Q414 and Q115 have led us to raise our real...
Germany Industry Coverage (22)
BMI View: German pork producers will come under pressure, owing to the ban on meat imports from Western countries that has been imposed by Russian authorities. On the other hand, sugar production should expand at a stronger pace over the coming years, owing to an increase in growing areas and yields, as well as the potential end to the EU's sugar production quota in 2017. Wheat output should also have a strong harvest in 2014/15, although there are some concerns about wheat quality owing to wet spells.
Milk production growth from 2013/14 to 2018/19: 21.0% to 37.1mn tonnes. Modest growth will be supported by export demand and higher prices, and held back by sluggish domestic consumption and the demise of...
In 2015, we expect to see further growth in vehicle sales in Germany, forecasting 5.3% growth over the year. We project that a 0.8% decline in heavy trucks will be far outweighed by 5.3%, 8.0% and 4.2% expansions in the passenger car, light commercial vehicle (LCV), and bus segments, respectively.
Passenger car sales will provide the strongest boost to overall vehicle sales in terms of volume. In 2015 and 2016, the car market will benefit from Germany's consumers ramping-up spending in reaction to positive and robust macroeconomic factors. Most notably, growing real wages, record high labour force participation rates and falling unemployment - which reached a post-reunification low of 6.4% in both March and April - all coupled with record low interest rates will provide the strongest boost to demand.
Adding to this light commercial vehicle (LCV) sales will outperform all other segments in terms of year-on-year...
Defence & Security
Germany Defence & Security
BMI View: Germany possesses one of Europe's largest defence sectors. The country is a major exporter of materiel around the world. Germany enjoys a reputation as a reliable supplier of high-quality defence equipment and subsystems. This is particularly evident in the land and naval systems domain. Historically, the domestic demand for German armaments has been outstripped by export sales. Furthermore, since the end of the Cold War, domestic demand for materiel has contracted significantly as German politicians and defence planners have been quick to exploit the so-called 'peace dividend' by reducing the size of the armed forces.
However, following several years of defence expenditure reductions, Germany will...
Food & Drink
Germany Food & Drink
BMI View: The German food and drink sector is mature and its growth prospects are closely tied to the strength of the overall economy. Considering our relatively modest GDP and private consumption growth outlook for the next several years, we have maintained our forecast for the food and drink sector and believe that total food consumption will expand by a compound annual growth rate of 3.6% between 2014 and 2019.
Key Forecasts (local currency)
Total food consumption growth year-on-year (y-o-y) in 2015: +4.0%; compound annual growth rate (CAGR) 2014-2019: +3.6%
Food consumption per capita growth (y-o-y) in 2015: +3.8%; CAGR 2014-2019: +3.5%
Total soft drinks sales growth (y-o-y) in 2015: +2.5%; CAGR...
Germany Freight Transport
Following a year in which we saw increasing volumes across the whole of Germany's freight transport sector, BMI believes 2015 will see further growth.
Total trade is projected to pick up with our Country Risk team forecasting a y-o-y increase of 1.35% in 2015, following an estimated growth at the same rate in 2014.
Road freight is set to continue to dominate the sector and is projected to grow by 2% in 2015. The sector was unable to defy the downturn losing more than 11% of freight volumes over 2009 and 2010 before a strong recovery begun in 2011.
Port of Hamburg tonnage is also expected to grow, having completed, according to our estimates, a full recovery to its pre-downturn levels in 2014.
Headline Industry Data
2015 Air freight tonnage is expected to grow by 1.5%...
Germany Information Technology
BMI View: We have downgraded the growth outlook for the Germany's IT market this quarter as a result of the economic slowdown and heightened regional economic downside risk. However, we expect total spending will continue to increase in each year of our forecast, with demand for IT services including cloud computing and big data forecast to outperform. Additionally, Germany continues to attract inward investment from leading global IT market vendors, with the Internet of Things investment a leading trend in 2014 and early 2015. Vendors are attracted to...
BMI View: Our view that insufficient capital is being deployed in the construction sector - in infrastructure and the residential and non-residential building sector - remains solidly in place. We forecast a notable slowdown in the overall German construction industry from the 3.7% real growth in 2014, with forecasts at 1.95% for 2015. We see little scope for a ramp-up in public or private investment in the sector. The residential sector, rail infrastructure and renewables projects remain the market's bright spots.
The German government's commitment to fiscal discipline and few reasons for private businesses to investment in...
Germany Medical Devices
BMI Industry View : Despite an increasingly challenging operating environment, Germany remains one of the most attractive medical device markets in Western Europe (WE), testament to the underlying strength of the German economy and a commitment to maintain a high quality healthcare service. Whilst austerity measures in the health sector have hit the pharmaceutical industry harder than the medical device industry, measures to restrict the growth in spending on hospital and ambulatory services are inevitably increasing pressure on prices,...
Germany's metals sector will continue to feel the squeeze as output prices remain low and costs stay stubbornly high. We forecast subdued growth in consumption of key metals such as steel, copper and aluminium, chiefly due to a muted outlook for economic activity in the country. Key metal consuming sectors such as autos and construction will remain weak. For autos production, we do not foresee a return to growth until 2018 at the earliest.
Illustrative of challenges faced by the wider metals sector, steel mills will remain under significant pressure, as low output prices squeeze margins. This will encourage consolidation of operations and dampen output growth. We forecast that steel production will post only erratic growth in the coming years, as low prices will continue to bite.
|Germany - Crude Steel Production|
BMI View: Germany's coal sector is one of the largest in Europe and is the main driver of mining activity in the country. Coal output continues to grow courtesy of strong demand for lignite used in the majority of the nation's power plants, however, the industry finds itself increasingly under threat from the rapid development of renewable energy production as well as growing opposition to fossil fuel-based energy production across the EU. These factors are likely to see the relative value of German mining gradually decline over the long-term.
Germany's mining sector is heavily focused around coal mining, with the country currently the largest producer of lignite, or brown coal, in the EU and boasting the eight highest annual output in global terms. Located primarily in the Rhineland region in Western Germany, the lignite mining industry remains a major employer. The...
Oil & Gas
Germany Oil & Gas
BMI View: Germany will remain the biggest consumer and importer of oil in Western Europe for the next 10 years. The country will also be the largest importer of natural gas. Demand for both oil and gas will remain weak as Germany continues its renewable energy drive.
The German petrochemicals market is set for a slowdown in growth in 2015 and the situation is likely to be sustained over the medium term, ensuring that it is unable to generate the consumption levels many European producers were banking on for recovery, according to BMI's latest Germany Petrochemicals Report.
In 2014, German chemicals output grew just 1.5%, with significant weakening in Q414. The industry's domestic sales fell 0.8%, marking a worse performance than the previous year. Clearly, the German chemicals and petrochemicals industries are not immune to the eurozone slowdown or the impact of the Ukrainian crisis and related sanctions on Russia. These events have exacerbated growing structural problems within the German economy, which is further denting an already ailing investment picture for the German petrochemicals sector.
In the long run, German producers will leverage...
Pharmaceuticals & Healthcare
Germany Pharmaceuticals & Healthcare
BMI View: One of the largest markets in Europe, Germany will continue to experience rising demand for pharmaceuticals, sustained by an ageing population with a strong bias towards patented medicines. In spite of this, additional restrictions on reimbursement, tempered by government's desire to preserve an industry integral to Germany's positive balance of trade and international prestige, will nonetheless constrain revenues and intensify already fierce competition amongst drugmakers. As such, drugmakers will perceive a positive, but deteriorating German operating environment, marked by intensifying price competition, increasingly burdensome regulation and an economic environment particularly susceptible to sudden external...
BMI View: There is little to indicate that Germany will diverge from the energy policy trajectory it has established under the Energiewende - despite the macroeconomic costs of its ambitious shift to renewables. Traditional utilities such as E.ON and RWE will have to respond to structural changes in the German power market if they are to ensure future profitability.
Although reform of the Renewable Energy Sources Act (EEG) may slow the pace of renewables expansion so as to reduce the costs associated with the Energiewende (energy transition), we emphasise there is little to indicate any major change in green energy policy trajectory. Germany will continue to register rapid growth in renewable-based electricity generation and retain its position as a global renewables powerhouse. This will, however, have significant implications for the economy and...
Germany Real Estate
BMI View: Germany boasts one of the most developed and investor-friendly commercial real estate markets in the European Union, with a dynamic export sector and strong consumer environment supporting steady growth in rental rates in the post economic-downturn era. However, we see slowing GDP taking some of the momentum out of the market with rental rate growth likely to be moderate over the coming year.
Germany's commercial real estate sector has retained something of a 'safe haven' status over recent years as a strong internal and external demand environment have supported continued growth in rental rates and investment flows. 2013 saw Germany record its highest level of commercial real estate transactional activity since 2007, with investment flows directed primarily towards the office market. The...
BMI View: The German renewables industry is expected to continue with solid growth in the next quarter as well as in the ten-year forecast period. While we expect the reforms of the German Renewable Energies Law (EEG) to help reduce price levels, we do not foresee them to do so in a drastic measure and hence expect price levels to remain above its regional peers.
German's renewables expansion has been undeniably successful in terms of capacity growth over the last three years and the contribution renewables generation makes to the country's electricity mix. Focusing primarily on wind and solar power, the country has firmly established itself as the European bellwether for green energy. The government has established a target for electricity generation from renewable sources, aiming to expand renewables so that they contribute 35% to total electricity generation in the country by...
BMI View: Overall, we expect the German retail market to see steady growth in 2015, as household spending continues to rise on the back of improving consumer confidence and lower oil prices (freeing up additional funds for non-essential purchases). However, medium-term growth remains constrained by the largely manufacturing-based economy which necessitates the maintenance of lower wages in order to ensure an attractive labour market for manufacturers. This hampers the country's potential for retailers, as comparatively low wages for a developed state encourage price-conscious consumers to save, and reduces outlays on big-ticket, big-brand luxury items. In light of this, we see continued...
Mobile subscriptions have decreased due to the consolidation to112.6mn in 2014, but the market will recover to 115.9mn by the end of 2019. The market is buoyed by robust mobile virtual network operator (MVNO) expansion and customer migration to 4G (LTE).
Improved mobile subscriber mix and the loss of non revenue-generating inactive subscriptions at Vodafone (and likely also at O2 after the E-Plus acquisition) should lead to a small improvement in the rate of average revenue per user (ARPU) erosion. However, the trend remains downward overall. BMI forecasts industry average ARPUs to fall from EUR13 in 2014 to EUR12 in 2019.
The German government plans to auction two blocks of 30MHz frequencies in...
Germany's tourism market is well developed and has benefited from strong government support and infrastructure spending over the previous decade, which allows the country to accommodate large numbers of tourists from other European countries. Growth will be steady, driven by a rise in visitors from outside traditional source markets. Eurozone uncertainty remains a concern, both for the economy and the tourism market.
Ultimately, Germany's tourism industry is built on solid foundations, with a central geographic location, strong business links and a diverse range of tourist attractions throughout the country. The industry is underpinned by strong transport infrastructure, and there has been a high amount of spending in recent years on air transportation in particular, with airport improvements in Berlin, Munich and Frankfurt, among others. The proliferation of low-cost, short-haul airlines means Germany is ever more accessible...
BMI View: Germany's water industry is highly developed, evidenced through high drinking water and sewage network connection rates, significant investment and strict drinking water criteria. However, in order to become a water powerhouse, Germany must further improve its overall water quality. We see the improvement of water quality as the final hurdle in the advancement of the German water sector.
Over the first half of 2014, the German construction industry has indeed shown signs that it is in the best shape it has been for over a year. ...