Germany’s Economy Chart Book
Carsten Brzeski and Inga Fechner
On the brink of recession?
September 2019
1. Key takeaways
2. How is the German economy doing?
3. Germany’s weak spots
4. External trade and the trade war
5. What’s happening in the automotive sector?
6. The German banking sector and its profitability
7. Housing market: Still too cheap or bubbly?
8. Migration and population
9. Germany’s current political landscape
10. What about Brexit?
11. Digitization: Still in “Neuland”?
2
Germany’s Economy Chart Book
• The recent slowdown of the German economy has been a result of one-off, structural and external factors. Harsh winter weather, unusually high sick leave due to the flu, the timing of Easter, strikes and more recently, disruptions to commercial transport from low water levels, have all weighed on the economy. At the same time, Germany continues to suffer from a lack of investment in digital and traditional infrastructure and has seen hardly any significant new structural reform in the past 10 years. Add to that external uncertainties and the picture does not look too bright for the months to come. On a more positive note, fundamentals remain sound, interest rates are low and employment is at a record high.
• The future path of the economy clearly depends on which of these factors carries more weight. If one-off factors are mostly to blame, then a rebound of the entire economy looks plausible. If the problem is more structural, the German economy should be prepared for a long period of underperformance.
• Complacency is not an option. The German economy needs new investment and structural reforms. The recent announcement of a “Green Plan” is a good start but more is needed. As regards digitisation, Germany still has a long way to go before catching up with the global top performers. Improving the digital infrastructure is urgently needed. This is not only to get the German population up to speed but to ensure that German SME’s-the hidden champions- do not fall behind international competition.
Key takeaways
3
From stellar growth to the brink of a recession within less than a year. Germany needs more than good luck to return to Europe’s pole position
2018 2019 2020 2021
GDP growth 1.4 0.6 1.0 1.2
Inflation 1.9 1.5 1.4 1.6
Unemployment 3.4 3.4 3.4 3.4
Current account (% of GDP) 7.3 7.1 6.8 6.5
Government debt (% of GDP) 60.9 57.4 55.0 52.0
How is the German economy doing?
Still the strong man of Europe?
5
Source: Refinitiv Datastream, ING Economic & Financial Analysis
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
2008-2013 2014-2018
Average GDP growth
(%)
DE Euro ex DE
Economic sentiment keeps deteriorating…
6
7
…with the industrial sector already in recessionary territory…
The industry sector has seen a complete reversal within the short period of one year
8
…and demand starting to falter
For a long time, supply side constraints have been the limiting factors to production. Now, demand is emerging as the main limiting factor
But the labour market remains strong…
9
The unemployment rate hit another post-reunification low. However, the labour market is losing steam
0
2
4
6
8
10
12
Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 Jan-15 Jan-19
German unemployment rate
(% of active labour force)
Source: Refinitiv Datastream, ING Economic & Financial Analysis
10
…with wages growing and many unfilled job positions
11
Lending conditions remain very favourable…
Credit growth to households and NFCs was broadly in line with nominal GDP growth
12
…and loans to corporates are on the rise
But equipment is no longer a pressing factor limiting production
13
Germany’s weak spots
Investment has remained low…
15
Source: Refinitiv Datastream, ING Economic & Financial Analysis
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
2008-2013 2014-2018
Investment in equipment and machinery
(annual average growth, %)
Euro ex DE DE
…widening the gap with other eurozone countries…
16
Source: Eurostat, ING Economic & Financial Analysis
0
5
10
15
20
25
2008-2013 2014-2017
Investment ratio
% of GDP
France Germany Italy Greece Spain Eurozone
The infrastructure is crumbling,…
17
Source: World Economic Forum Global Competitiveness Report, ING Economic & Financial Analysis
4
4.5
5
5.5
6
6.5
7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Quality of roads
(Value)
…digitisation could be expanded…
18
Source: European Commission
0
10
20
30
40
50
60
70
80
The Digital Economy and Society Index
2019 ranking
Connectivity Human Capital Use of Internet Integration of Digital Technology Digital Public Services
19
…and female labour market participation remains low
28
29
30
31
32
33
34
35
Eurozone Germany Spain France Italy
Avg. number of usual weekly hours of work, female
2018
Source: Eurostat
0
5
10
15
20
25
30
35
40
45
Eurozone Germany Spain France Italy
Avg. number of usual weekly hours of work
2018
Female Male
External trade and the trade war
21
Germany’s main trading partners
China and the US are among Germany’s main trading partners, with China being the most important one (exports + imports)
Source: Refinitiv Datastream, ING Economic & Financial Analysis
0 50 100 150
USA
France
China
Netherlands
UK
Italy
Austria
Poland
Switzerland
Belgium
€bn
Top 10 export countries
0 50 100 150
China
Netherlands
France
USA
Italy
Poland
Czech Republic
Belgium
Switzerland
Austria
€bn
Top 10 import countries
Germany’s trade balance is high
22
Source: Refinitiv Datastream, ING Economic & Financial Analysis
-30 -20 -10 0 10 20 30 40 50 60
China
Netherlands
Belgium
Switzerland
Poland
Italy
Austria
France
UK
USA
€bn
Foreign trade balance with Top 10 export countries
2008-2013 2014-2018
23
Cars and car parts remain Germany’s most important export good
0 50 100 150 200 250
Electrical equipment
Computer, electronic and optical
products
Chemicals and chemical products
Machinery and equipment
Motor vehicles, trailers and semi-
trailers
€bn
Top 5 export goods
Exports Imports
0 50 100 150 200 250
Crude petroleum and natural gas
Machinery and equipment
Chemicals and chemical products
Other goods
Computer, electronic and optical
products
€bn
Top 5 import goods
Imports
Source: Destatis, exports and imports (special trade) by division of the national Product Classification for Production Statistics 2018, preliminary results
24
How has the trade dispute impacted German exports?
25
Many German cars are born in the USA
German carmakers produce more vehicles in the US than they export there
Yet, the US are the main buyers for German vehicles and motor vehicle parts
On a macro-level, no major impact on the EU economies is expected
26
-0.4
-0.3
-0.2
-0.1
0.0
Me
xico
Ca
na
da
Hu
ng
ary
So
uth
Ko
rea
Lu
xem
bo
urg
Ire
lan
d
Ge
rma
ny
Slo
vaki
a
Jap
an
Cze
ch R
ep
ub
lic
Ne
the
rla
nd
s
EU
28
Sw
ed
en
Be
lgiu
m
Au
stri
a
Po
lan
d
Ita
ly
No
rwa
y
Ch
ina
UK
Sp
ain
Ro
ma
nia
Slo
ven
ia
Fra
nce
Au
stra
lia
Tu
rke
y
De
nm
ark
Fin
lan
d
Ma
lta
Bra
zil
Ind
ia
Ru
ssia
Ind
on
esi
a
Est
on
ia
La
tvia
Lit
hu
an
ia
Bu
lga
ria
Po
rtu
ga
l
Sw
itze
rla
nd
Cy
pru
s
Cro
ati
a
Gre
ece
US
A
Effect of US unilateral auto import tariffs on GDP
(import tariffs of 25% on cars, % of price-adjusted GDP)
Source: ifo Institut, May 2018 Source: ING Group Research
When looking at the macro picture, the impact of car tariffs on individual economies seems to be small.
What’s happening in the automotive sector?
- Around 2% of total employment is in the automotive industry
- Between 70% and 80% of automotives produced in Germany is exported
- Between 7% and 8% of the German economy is directly and indirectly linked to the automotive industry
- Roughly one third of all investments into R&D stems from the automotive industry
Benchmarking importance of cars to economy
28
29
Sharp drop in vehicle manufacturing, no longer due to one-off factors only
30
Export engine – the money is earned abroad
42% 41%39% 40%
43%
37% 37% 36% 35% 36% 35%37% 36% 35%
58% 59% 61% 60%57%
63% 63% 64% 65% 64% 65% 63% 64% 65%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Domestic turnover Foreign turnover
42% 41% 39% 40%43%
37% 37% 36% 35% 36% 35% 37% 36% 35%
24% 23%24% 23%
23%
22% 21%18%
16%18% 18%
20% 21% 21%
34% 36% 37% 37% 35% 41% 42% 47% 48% 47% 47% 43% 43% 44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Domestic turnover Turnover with Eurozone
Other foreign countries
Source: Destatis
31
Germany’s top 3 partners for exports and imports of motor cars
JP
TR
KR
KR
USKR
KR
TR
JPTR
TR
TR
JP
JP
US
CHKR
JP
KRJP
KRTR
TR TRKR
KR
KR
KR
MX
JP
JP
TR
MXJP
JP
JP
KR
MA
KR
KR
KR
RU
RU
TW
JP KR
JPTR
JP
KR
JPMA RU
JP
JP
JP
TR
CH
RU
JP
ZA TR
TR
KR
TR
KR
XS
XS
TR
US
CH
US
TR
TR
TR KR
TR
JP
MA
KR
CH
TR
US
TR
0
20
40
60
80
100
Be
lgiu
m
Bu
lga
ria
Cze
chia
De
nm
ark
Ge
rma
ny
Est
on
ia
Ire
lan
d
Gre
ece
Sp
ain
Fra
nce
Cro
ati
a
Ita
ly
Cy
pru
s
La
tvia
Lit
hu
an
ia
Lu
xem
bo
urg
Hu
ng
ary
Ma
lta
Ne
the
rla
nd
s
Au
stri
a
Po
lan
d
Po
rtu
ga
l
Ro
ma
nia
Slo
ven
ia
Slo
vaki
a
Fin
lan
d
Sw
ed
en
Un
ite
d K
ing
do
m
Top 3 partners for extra EU-28 imports of motor cars by
member state, 2018 (%)
First partner Second partner Third partner Other
US
MK
IL
FO
US
RUNG
MK
TRCH
BAUS
EG
CN
BY
CNXS
LY
CH US
TR
CN
TR XS
US
RU
US
USCH
TR
CH
IS
CN
CHCD
AL
US
DZ
AL
JP TH
RU
UA
TH
UA
EG
XSCH
UA
CH
ZA
BA
CN
CA
CN
CN
JP
CH
TR
NO
JP
CN
US
IL
CH
NO
ME
CN
NZ
UA
TJ
JP
TR
SG
US JP
CH
ZA
MA
CN
RU
NO
NO JP
0
20
40
60
80
100
Be
lgiu
m
Bu
lga
ria
Cze
chia
De
nm
ark
Ge
rma
ny
Est
on
ia
Ire
lan
d
Gre
ece
Sp
ain
Fra
nce
Cro
ati
a
Ita
ly
Cy
pru
s
La
tvia
Lit
hu
an
ia
Lu
xem
bo
urg
Hu
ng
ary
Ma
lta
Ne
the
rla
nd
s
Au
stri
a
Po
lan
d
Po
rtu
ga
l
Ro
ma
nia
Slo
ven
ia
Slo
vaki
a
Fin
lan
d
Sw
ed
en
Un
ite
d K
ing
do
m
Top 3 partners for extra EU-28 exports of motor cars by
member state, 2018 (%)
First partner Second partner Third partner Other
Source: Eurostat
32
There still are growth islands for German carmakers
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Exports (in bn euro)
UK USA China East Europe
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Exports, %YoY
UK USA China East Europe
Source: Destatis. East Europe = Poland, Czech Republic, Hungary. Motor vehicles, engines, bodywork, electronic equipment, other parts and accessories for motor vehicles
33
Domestic demand remains solid…
…but structural change is already happening…
34
0
10
20
30
40
50
60
70
2014 2015 2016 2017 2018
Registration of new passenger cars in Germany (%-share)
petrol-powered diesel-powered alternatively-fuelled
Source: KBA
…even if the road ahead is long
35
Source: EAFO
0%
10%
20%
30%
40%
50%
60%
Market share of newly registered passenger electric vehicles in selected European countries in 2018
Battery electric vehicle Plug-in hybrid electric vehicle
Who wants to use car sharing?
36
Are you considering using car sharing within the next year?
Source: ING International Survey, 2018
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
18-24 25-34 35-44 45-54 55-64 65 oder älter
Yes, and will use it as my primary mode of transport I already use car sharing services as my primary mode of transport
Yes, but only in addition to my primary mode of transport I am already using car sharing in addition to my primary mode of transport
How about car sharing in Europe?
37
Are you considering using car sharing within the next year?
Source: ING International Survey, 2018
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Belgium Czech
Republic
Luxembourg Austria United
Kingdom
Netherlands France Germany Poland Romania Spain Italy Turkey
Yes, and will use it as my primary mode of transport I already use car sharing services as my primary mode of transport
Yes, but only in addition to my primary mode of transport I am already using car sharing in addition to my primary mode of transport
What about Brexit?
No deal – Impact on Europe and Germany
39
0%
1%
2%
3%
4%
5%
6%
7%
8%
Goods exports to UK
(as % of country's GDP)
2017 2018
• Belgium, the Netherlands and Ireland are particularly exposed to a ‘no deal’ Brexit given their importance in British supply chains.
• Around 60% of the UK’s marine trade with Europe* goes to either Netherlands, Belgium or France.
• While major European ports are reportedly fairly advanced in their preparations, fewer plans appear to have been made at UK terminals.
• The Netherlands is also the UK’s no. 1 source of Foreign Direct Investment from the EU, followed by Luxembourg and Germany.
Source: Refinitiv Datastream, ING Economic & Financial Analysis. *Gross tonnage
Is Frankfurt winning the battle for London’s bankers?
40
The German banking sector and its profitability
42
The number of credit institutions in Germany continues to fall…
3,578
1,783
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Credit institutions in GermanyNumber of institutions
Source: Deutsche Bundesbank
43
…and banks have seen better days regarding profitability
1Excluding the total assets of the foreign branches of savings banks, excluding the total assets of the foreign branches of regional institutions of credit cooperatives until 2015 and, from 2016, excluding the total assets of the foreign branches of mortgage banks.
0
0.5
1
1.5
2
2.5
2011 2012 2013 2014 2015 2016 2017
Net interest income (interest margin)1
% of total assets
All banks Commercial banks
Savings banks Credit cooperatives
Mortgage banks Landesbanken
Building and loan associations Banks with special tasks
Source: Deutsche Bundesbank, ING Germany
54
56
58
60
62
64
66
68
70
72
74
76
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Cost-income ratio of German banksin % of operating income1
German banksSource: Deutsche Bundesbank, ING Germany
44
Contraction in the banking sector is not just a German issue
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
Ge
rma
ny
Ita
ly
Hu
ng
ary
Au
stri
a
Fra
nce
Ire
lan
d
Cy
pru
s
Po
lan
d
Fin
lan
d
De
nm
ark
Lit
hu
an
ia
Be
lgiu
m
Ne
the
rla
nd
s
Po
rtu
ga
l
La
tvia
Slo
vaki
a
Est
on
ia
Ma
lta
Cze
ch R
ep
ub
lic
Sp
ain
Cro
ati
a
Slo
ven
ia
Bu
lga
ria
Gre
ece
Lu
xem
bo
urg
Ro
ma
nia
Sw
ed
en
Un
ite
d K
ing
do
m
Change in number of credit institutions from previous year (2017 vs 2016)
Source: EBF, ECB
Internet banking is slowly on the rise in Germany
45
0
10
20
30
40
50
60
70
80
90
100
Internet use for internet banking
% of individuals aged 16 to 74
2010 2018
Internet use is the number of people accessing the internet, usually expressed as a proportion of the population. In the context of the Community survey on ICT usage in households and by individuals on internet use within households, an internet user is defined as someone who has used the internet within the last three months, […] regardless of where they do so. Internet banking includes electronic transactions with a bank for payment etc. or for looking up account information.
Source: Eurostat
Housing market
Housing bubble or not?
47
0
3
6
9
12
15
50
60
70
80
90
100
2009 2011 2013 2015 2017
The trend seems to be clear…
Equity, '000€ LTV, % Fixed interest, years, rhs Redemption, %, rhs
Source: Interhyp
48
Huge differences across country
Source: Interhyp
40
45
50
55
60
65
70
75
80
85
90
2009 2011 2013 2015 2017
…or no bubble?
LTV BaWü % LTV Hamburg % LTV Lower Saxony %
40
45
50
55
60
65
70
75
80
85
90
2009 2011 2013 2015 2017
Bubble…
LTV Berlin % LTV Bremen % LTV Sachsen-Anhalt %
Migration andpopulation
Although the number of asylum applications has declined...
50
Source: Refinitiv Datastream, ING Economic & Financial Analysis. Unreported data from October 2018 onwards for all but Afghanistan and Eritrea.
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
Countries of origin of asylum applications
First-time asylum applications
Syria Afghanistan Iraq Eritrea all other nationalities
...integration could be cumbersome…
51
…at least judging from other experiences
52
0
10
20
30
40
50
60
70
80
90
100
Belgium Sweden Norway Switzerland
Employment rate of asylum seekers by duration of stay in country in years
1>5 6>9 10>
A majority sees immigration as an opportunity
53
Source: Friedrich-Ebert Stiftung. Deviation of 100% due to rounding. Survey from March 2019, n=3000, eligible population of Germany
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Nationally oriented
Mobile center
Cosmopolitan
All
"Germany should understand immigration as an opportunity"
Totally agree Rather agree Do not know/No indication Rather do not agree Do not agree at all
Germany’s current political landscape
55
Sonntagsfrage: If there were federal elections next Sunday...
August 2019, % August 2018, %
26
14 14
7 7
25
7
0
5
10
15
20
25
30
CDU/CSU SPD AfD FDP Linke Greens Other
Source: Infratest dimap für ARD-Morgenmagazin
29
1817
89
14
5
0
5
10
15
20
25
30
CDU/CSU SPD AfD FDP Linke Greens Other
56
Climate change is becoming more important, not only in the EU
0
10
20
30
40
50
60
Most important issues facing the EU (%-EU)
Immigration
Climate change
Economic situation
The state of member states' public finances
Terrorism
The environment
Source: Eurobarometer Spring 2019
0 5 10 15 20 25 30 35 40
Government debt
Taxation
Economic situation
Unemployment
Terrorism
Crime
Rising prices/inflation/cost of living
Health and social security
Pensions
Education system
Immigration
Housing
Environment/climate change
Most important issues facing Germany at the moment
(%)
And Germans continue to be optimistic for the future of the EU
57
Digitisation: Still in “Neuland”?
Opinions on Germany’s competitiveness differ, but…
59
0
5
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Germany's placement in global competitiveness
Rank
World Economic Forum IMD World Competitiveness Center
…internet speed is too slow…
60
Source: Cable/https://www.cable.co.uk/broadband/speed/worldwide-speed-league/
0 10 20 30 40 50 60 70 80 90
Germany
Hungary
United States
Spain
Switzerland
Netherlands
Japan
Denmark
Sweden
Singapore
Taiwan
Average internet connection speed
Selected countries, Mbps, 2019
…also in companies
61
0 10 20 30 40 50 60 70 80
France (EU-min)
Italy
Greece
Cyprus
Germany
Portugal
Netherlands
Denmark
Sweden (EU-max)
Enterprises with fast internet access
all enterprises with 10 or more persons employed (%)
2017 2018
EU-28 = 48
Source: Destatis, Eurostat. Fast internet refers to fixed broadband connections with a contractually agreed data transfer speed of at least 30 megabits per second (Mbps).
Online sales and cloud computing are not widespread
62
Source: Destatis
0 10 20 30 40 50 60 70 80 90 100
Cloud Computing
Online sales
Fast internet
Social Media
Mobile broadband
Website
Fixed broadband
Companies in Germany who have...
%, 2017
Share of glass fibre remains low…
63
0% 10% 20% 30% 40% 50% 60% 70% 80%
Greece
Germany
Italy
France
United States
Netherlands
Turkey
OECD
Sweden
Japan
Korea
Ready for Industry 4.0?
Share of fibre connections in total broadband subscriptions (%)
2018 2017
Source: OECD Broadband Portal
…while costs remain high for what you get…
64
Source: OECD
0
2
4
6
8
10
12
14
16
18
20
GB per month, per mobile broadband subscription
2018 2017
…and not only for internet rates
65
Source: Eurostat, 2 500 kWh < Consumption < 5 000 kWh
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
Electricity price for households per 1 kWh in H2 2018
in Euro
Excluding taxes and levies All taxes and levies included
But Germany ranks highly for robotisation…
66
0 100 200 300 400 500 600 700 800
Czech Republic
Switzerland
France
Finland
Slovenia
Slovakia
Spain
Canada
Austria
Netherlands
Italy
Belgium
Taiwan
US
Denmark
Sweden
Japan
Germany
Singapore
Korea
Number of installed industrial robots
per 10,000 employees in manufacturing industry
2017 2016
Average world: 85
Source: IFR
…which eventually could change labour markets…
67
Managers
Professionals
Technicians and associate
professionals
Clerical support workers
Service and sales workers
Skilled agricultural, forestry and
fishery workers
Craft and related trades workers
Plant and machine operators and
assemblers
Elementary occupations
0%
2%
4%
6%
8%
10%
12%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Em
plo
ym
en
t g
row
th 2
01
3-2
01
7
(%-c
ha
ng
e)
Probability of computerisation
Employment growth and probability of computerisation in Germany
%
Source: ING Economic & Financial Analysis, Die Roboter kommen (doch nicht?), June 2018
…possibly having an impact on middle-class jobs
68
Source: ING-DiBa Economic & Financial Analysis, Die Roboter kommen (doch nicht?), June 2018
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Highly complex/complex occupations Skilled workers Elementary occupations
Employment growth in Germany
%-change, 2013-2017
This publication has been prepared by the Economic and Financial Analysis Division of ING DiBa (“ING”) solely for information purposes without regard to any particular user's
investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or
solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not
represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated,
any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice. The distribution of this publication may be
restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of
ING. All rights are reserved. The producing legal entity ING DiBa is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank
(DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).
Disclaimer
69