Our comprehensive assessment of Germany's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Germany, as well as the latest industry developments that could impact Germany's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Germany before your competitors.
Germany Country Risk
We have now moved even further below consensus on German growth for 2014, and remain some way below consensus on growth in 2015, as weakening confidence will cap both investment and consumption growth over the coming quarters.
We estimate the Germany's current account surplus to have peaked in 2013, due to weakening demand in key export markets and eroding export competitiveness. However, 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.
German energy policy will continue to drive significant structural economic imbalances. While attempts to shield industry from the cost of transition towards renewable energy resources will curtail consumption, German industrial competitiveness will eventually suffer from higher energy costs....
Germany Industry Coverage (21)
BMI View: Â Sugar production fell steeply in 2013/14 and the financial and legal setbacks suffered by major firms suggest that Germany's sugar industry will not enjoy a smooth transition into the post-quota age. Dairy producers are expected to fare better after the removal of supply quotas in 2015 as Europe's number one milk producer is already succeeding in capturing new export markets. Processed dairy products will also perform well over the forecast period and here too we see potential for further growth with deregulation. For meat production we see a more complex outlook with poultry output and consumption forecast to grow substantially, but weak growth expected for pork and beef. We expect strong wheat and corn harvests on the back of favourable weather, with barley falling back slightly in line with longer term trends.
|Milk Recovers Stability|
In 2013, vehicle sales in Germany declined 4% on the back of a 4.2% drop in the passenger car segment and a 2.2% fall in the commercial vehicle (CV) segment. In 2014, we expect to see a return to growth in the industry, with total vehicle sales forecasted to increase 2.8% over the year. This comes from an expected 2.0% increase in passenger car sales and a 10.5% increase in the CV segment.
In 2013, vehicle production in Germany increased 1.2% on the back of a 1.1% increase in the passenger car segment and 2.3% raise in CV output. In 2014, we forecast a 5.9% increase as passenger car output is expected to increase 6% and CV output increase 4.1%.
Defence & Security
Germany Defence & Security
Speaking in June 2014, German defence minister Ursula von der Leyen announced plans for Germany to increase the share of the country's Gross Domestic Product which is spent on defence. At the moment, Germany spends just over one percent of its GDP on defence. In addition, she argued that NATO's two percent non-binding figure was less important than how the money was spent, adding that the sharing of common capabilities across Europe could be one mechanism by which Germany and its neighbours can save money vis-a-vis defence procurement.
The value of arms export licences granted by the German government increased significantly in 2013 according to reports published in June 2014. In 2013 the government approved a total of 17,280 arms export applications. This was an increase of 900 licences compared to the previous year. The report continued that 38 percent of German arms exports performed in 2013 were to countries outside the European Union and...
Food & Drink
Germany Food & Drink
BMI View: Â We maintain a positive outlook for Germany's food and drink industry in 2014 as the tightening labour market bodes well for both job creation and real wage growth. Government policy should also prove supportive of stronger household expenditure, with flagship policies of the new coalition government including more generous pension provisions and the introduction of a national minimum wage. These developments are expected to spur private consumption and contribute to a strong rebound across the food and drink industry in 2014. The impact of economic sanctions on Russia and the corresponding boycott of German imports by the Russian government could, however, start to be seen during Q414.Â
Headline Industry Forecasts (local currency)
Total food consumption growth (year-on-year, y-...
Germany Freight Transport
Following a year in which BMI believes saw the recovery resume, 2014 will signal further growth and some of the freight modes return to their pre-downturn levels.
Total trade is projected to pick up with our Country Risk desk forecasting a y-o-y increase of 1.35% in 2014 following an estimated growth of 0.3% in 2013.
Road freight is to continue to dominate the sector and is projected to grow by 2% in 2014. The sector did not manage 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, completing a full recovery to its pre-downturn levels in 2014.
Headline Industry Data
2014 Air freight tonnage is expected to grow by 3.0%
Germany Information Technology
BMI View: Â Like the majority of developed markets, desktop and notebook volumes declined sharply in 2012 and 2013 as tablet sales cannibalised those of traditional form factors. However tablet penetration remains relatively low in Germany, indicating further growth potential. There should also be a boost to desktop sales in 2014 due to withdrawal of Microsoft support for XP. These features combine to underpin our view for stronger hardware spending growth in 2014 compared with 2013. Meanwhile, software and services spending growth is forecast to outperform hardware spending in 2014 - and over the medium term to 2018 - as increased adoption of emerging technologies such as cloud computing, machine-to-machine communications and big data analytics drive spending higher. Cloud computing is a particularly interesting market segment, with opportunities for local providers or global firms with a local...
BMI View: The German construction industry has returned to growth and is in the best sh ape it has been for over a year . As such, we are maintaining our forecast for growth in the industry at 1. 6 % year-on-year in real terms driven largely by continued investment in the renewables sector and an uptick in r esidential building activity . We expect growth to reach 2% in 2015 . Ho wever , we note a lack of investment across the board will keep growth muted...
BMI View: The newsflow from late 2012 highlights two major themes. One is the resilience of the German insurance sector in the face of challenging economic conditions. Non-life premiums appear to have risen by around 3% in the first half of the year. This is partly thanks to a firming in rates for car insurance and partly because of the passing on to customers of the higher claims costs associated with catastrophes in 2011. As was the case in 2011, combined ratios have been improving: underwriting discipline and cost control continue to come to the fore. In the life segment, a decline in single premium product sales in 2011 was partially offset by a rise in more profitable recurring premium lines. The leading life insurance companies have indicated that these trends continued in H112.
In short, it remains clear that Germany has a clear competitive advantage as a provider of insurance solutions...
Germany Medical Devices
Espicom 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 un derlying 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 increa s ing...
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.
Three firms dominate steel production in Germany. ThyssenKrupp is Germany's largest steel maker and will be...
We expect Germany's mining industry value to grow modestly, averaging 2.8% growth y-o-y from an estimated USD5.8bn in 2014 to USD6.8bn in 2018. Despite government efforts to switch to renewable energy sources for power generation, brown coal will remain a crucial fuel over coming years. As a consequence, lignite mining will endure in Germany over our forecast period to 2018.
|Modest Gains Over Coming Years|
|Germany - Mining Industry & Production Growth|
Beyond the coal sector, we expect Germany's iron ore sector to record modest growth in the next five years. Germany's iron ore production...
Oil & Gas
Germany Oil & Gas
BMI View: We see only limited upside to the current bearish outlook for domestic oil and gas production in Germany. There are some areas of opportunity, including redevelopment of maturing sites, enhanced oil recovery and the upside from underexplored regions in East Germany. The largest source of upside risk is from unconventional gas development, and although hydraulic fracturing regulations are being drafted the sector remains mired in political and environmental uncertainty.
The main trends and developments in Germany's oil and gas sector are:
New regulations governing the application of hydraulic fracturing are being drawn up by the German government, though we believe they will be sufficiently restrictive to hinder significant investment in shale gas production. This is largely due to inhibitive environmental regulations...
The German chemicals industry is likely to make a transition to more high value speciality production amid growing competition and a revival in export markets, although this is likely to be at the expense of petrochemicals and polymers which are enduring a lacklustre market environment.
German chemicals output, excluding pharmaceuticals, rose 1.5% year-on-year (y-o-y) in H114 on the back of strengthening domestic sales and capacity utilisation of 85%. Speciality chemicals led sector growth, rising 6.0% y-o-y. However, petrochemicals output grew just 0.5% while polymers fell 1.5%. This is in line with BMI's expectation of an overall stagnation in petrochemicals and polymers, even as value added parts of the production chain will strengthen.
While foreign sales for German production rose 1.0% to EUR58bn, domestic sales grew 3.5% to EUR40bn, leading to a total of EUR98bn, a rise of 2.0% over H113....
Pharmaceuticals & Healthcare
Germany Pharmaceuticals & Healthcare
BMI View: Germany's medicine pricing regime will continue to restrict drugmakers' revenue streams. T he price freezes, cuts and discounts implemented in Germany are having a contagious effect, putting further pressure on drugmakers looking to benefit from marketing their products in other European markets. Despite this situation, Germany will remain an attractive market to drugmakers. The long-term and clear nature of the price measures implemented by the government can be viewed as a restructuring of the country's medicine pricing methodologies in comparison with the numerous emergency measures implemented by governments in southern Europe - which are highly...
BMI View: Attempts by Germany's grand coalition government to constrain the cost and pace of Germany's Energiewende do not ultimately indicate that there has been a major change in policy trajectory. While growth in renewables may be slower than anticipated, we believe that the Energiewende will erode German competitiveness and the structural challenges facing traditional utilities will remain in place in 2014 and 2015.
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 forecast Germany will continue to register rapid growth in renewable-based electricity generation. As such, Germany will retain its position as a global renewables powerhouse, but this will have significant implications for the economy and structural problems in the utilities sector are unlikely to...
Germany Real Estate
BMI View: Â Although we expect Germany remain a safe haven and to outperform many of its regional rivals over the remainder of 2014, we caution that a number of challenges may threaten the health of the economy. An upcoming challenge to the real estate segment as a whole stems from the recent geopolitical crisis between Russia and Ukraine. EU sanctions placed upon Russia are expected to generate widespread uncertainty within the economy. As a major trade partner, Germany may face further setbacks to their industrial real estate segment.
Despite the recent economic downturn, Germany has managed to retain its status as a 'safe haven' among investors while the country continues to possess one of the world's most important commercial real estate markets. Germany must, however, grapple with its troubled industrial segment as stagnating export demand and EU sanctions on Russia...
BMI View: Germany's commitment to its green energy policy and the investment opportunities on offer dwarf those in other European countries. Despite recent reforms to the Renewable Energy Source Act, we expect the country to retain its leading position in the European renewables industry over our 10-year forecast period. That said, we believe the ambitious energy policy, and the costs associated with it, will have a significant impact on the German economy over the coming years.
The German renewables industry has grown at a phenomenal pace over the last few years as the country pushes for an expansion of renewable energy in light of the post-Fukushima nuclear phase out. Focusing primarily on wind and solar power, the country has firmly established itself as the European bellwether for green energy. The government have established a target for electricity generation from renewable sources,...
BMI View : Consolidation is driving the German telecommunications market as operators strive to reinvent themselves as full co nverged service providers. O2 has acquire d E-Plus , Vodafone has gained control of Kabel Deutschland Group , and cable and broadband operators are exchanging assets that will bolster their presence in key cities. Low value voice and messaging services are being superseded by data-centric ser vices as more consumers demand ' everything everywhere' access. Consequently, business strategies are being reforged and...
In spite of its extremely well-established tourism sector, Germany presents developers with numerous opportunities for new entrants, as evidenced by the large number of players entering the hotel sector over the past year. That said, we see more opportunities for established companies to expand their existing presence. In addition, the growing number of trans-regional overland transport connections, and the stabilisation of the wider European economy are likely to encourage higher arrivals from Germany's largest source markets (predominantly in Europe). We do note that the ongoing economic uncertainty in Germany, which is negatively affecting household consumption, is liable to constrain German tourist numbers, both domestic and outbound.
Germany is not expected to see strong growth in departures in 2014; we forecast a year-on-year increase of just 2.7%. However, this is predominantly due to the fact that the outbound tourism market is...
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 improve its overall water quality. We see the improvement of water quality as the final hurdle in the advancement of the German water sector.
A significant amount of investment is poured into Germany's water sector, with its water supply and waste water sectors receiving EUR2bn and EUR5bn per year respectively. Furthermore, the country benefits from a 99% drinking supply connectivity rate and a 96% sewage network connectivity rate. The population have excellent access to high quality drinking water which is subject to meeting strict criteria as set by the German Drinking Water Ordinance. Legislation introduced in 2013 decreased lead levels in tap water within the country,...