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German economy succumbs to the slowdown

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By Andrew Davis

3:54PM GMT 11 Nov 2014


Regarded as the eurozone’s engine for years, Germany is no longer running so smoothly.

The country’s legendary manufacturing sector, which has made it the world’s third biggest exporter, is slowing markedly – industrial output fell 4pc in August, the biggest month-on-month drop since February 2009.


Factory orders also tumbled 5.7pc, suggesting the soft patch will continue for a while at least. German consumers, meanwhile, are in cautious mood, with retail sales in September dropping by more than 3pc, once again the biggest monthly decline since the credit crunch was at its worst.

All in all, it looks as if Germany is succumbing to the slowdown taking hold almost everywhere, a notable exception being the US. As a major exporter, Germany is exposed to weakness in other parts of the world – its major trading partners in the eurozone are all experiencing slow growth and several are on the brink of recession. It’s entirely possible Germany could dip back into recession this year.


Further afield, the huge Chinese market is cooling rapidly, which naturally damps demand for German exports, while Russia is feeling the chill of international sanctions and suffering a currency collapse.


For investors, the German story is based on its excellence as an exporter and affluence of its domestic market, both of which are now in question to some degree at least.


If world growth is slowing, as seems to be the case, Germany’s ability to continue exporting its way to prosperity is going to be compromised. At home, meanwhile, the government’s determination to return to a budget surplus in the near future means relatively little chance of any stimulus to boost domestic demand.


It does not make sense to write off Germany as an investment opportunity – the quality of its companies, not to mention the probability that the Euro will weaken further as a result of loose monetary policy, make it a formidable exporter whose prowess is not about to disappear overnight. But the eurozone looks as if it will be on its knees for a while, so a lot will depend on how the wider world fares.


That said, investors need to appreciate that the factors that fuelled Germany’s resurgence during the noughties, in particular China’s years of 10pc growth, are receding into past and that means its companies will need to find new avenues to pursue.


This is no disaster – it may be getting harder to sell top-of-the range BMWs to Chinese government officials, but there’s little sign of Aldi and Lidl’s budget-shopping invasion running out of steam.





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