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January 30, 2017
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2016 GDP growth picked up further relative to the previous two years (1.9% vs. 1.7%). Growth was strongly tilted towards consumption thanks to several tailwinds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment: With several tailwinds fading and a strong workday effect weighing, GDP growth looks set to slow to 1.1% in 2017. Recent sentiment indicators herald some upside risks for the current quarter. However, the 2.3 point drop in the expectations component of the January ifo index seems to corroborate our more cautious stance. In an unexpected turn, SPD party leader Gabriel announced that he would not run against Angela Merkel. Instead Martin Schulz, the former president of the European Parliament, will be the party’s frontrunner. Mr. Schulz’s unexpected nomination is likely to push the SPD’s campaign for the federal election on September 24 but unlikely to derail Merkel. [more]
Focus Germany: New SPD frontrunner unlikely to defeat Merkel Focus Germany Germany: Strong 2016 GDP growth of 1.9% supported by temporary tailwinds. 2016 GDP growth picked up further relative to the previous two years (1.9% vs. 1.7%). Growth was strongly tilted towards consumption thanks to several tailwinds (refugee crisis, low inflation, labour market strength), while slowing exports weighed on private equipment investment: With several tailwinds fading and a strong workday effect weighing, GDP growth looks set to slow to 1.1% in 2017. Recent sentiment indicators herald some upside risks for the current quarter. However, the 2.3 point drop in the expectations component of the January ifo index seems to corroborate our more cautious stance. The view from Berlin. Martin Schulz’s unexpected nomination likely to push the SPD’s campaign but unlikely to derail Merkel. In an unexpected turn, SPD party leader Gabriel announced that he would not run against Angela Merkel. Instead Martin Schulz, the former president of the European Parliament, will be the party’s frontrunner. Mr. Schulz’s nomination could boost the SPD’s campaign for the federal election on September 24, given his rhetorical skills and his track record as a successful campaigner in the 2014 European election. The SPD will primarily campaign for social justice, in line with Schulz’s own political views. But he will probably advocate intensified German support for the partner countries in Southern Europe, i.e. a more expansive fiscal policy stance in Germany, too. Even with Schulz, the SPD will hardly become strong enough to establish a coalition with the Greens and the Left. Mr. Schulz, who in Brussels co-operated closely with the conservative COM President Juncker, will most likely enter a renewed grand coalition if necessary, but might be less inclined to play second fiddle than current vice-chancellor Gabriel. Authors Dieter Bräuninger +49 69 910-31708 dieter.braeuninger@db.com Heiko Peters +49 69 910-21548 heiko.peters@db.com Oliver Rakau +49 69 910-31875 oliver.rakau@db.com Stefan Schneider +49 69 910-31790 stefan-b.schneider@db.com Editor Stefan Schneider Deutsche Bank AG Deutsche Bank Research Frankfurt am Main Germany E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 www.dbresearch.com DB Research Management Stefan Schneider Content Page Forecast tables ................................................. 2 Germany: Strong 2016 GDP growth of 1.9% supported by temporary tailwinds .................... 3 The view from Berlin. Martin Schulz’s un- expected nomination likely to push the SPD’s campaign but unlikely to derail Merkel ............ 6 DB German Macro Surprise Index ................... 9 Export Indicator............................................... 10 Event calendar ................................................ 11 Data calendar ................................................. 12 Financial forecasts.......................................... 13 Data monitor ................................................... 14 January 30, 2017 New SPD frontrunner unlikely to defeat Merkel New SPD frontrunner unlikely to defeat Merkel 2 | January 30, 2017 Focus Germany Economic forecasts DX Real GDP Consumer Prices* Current Account Fiscal Balance (% growth) (% growth) (% of GDP) (% of GDP) 2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F 2016F 2017F 2018F Euroland 1.7 1.3 1.5 0.2 1.4 1.5 2.9 2.8 2.5 -1.8 -1.5 -1.5 Germany 1.9 1.1 1.5 0.5 1.6 1.6 8.8 8.2 7.8 0.5 0.5 0.2 France 1.2 1.3 1.1 0.3 1.2 1.3 -0.5 -0.3 -0.1 -3.2 -3.2 -3.1 Italy 0.9 0.7 0.7 -0.1 1.0 1.2 2.9 2.7 2.3 -2.3 -2.3 -2.3 Spain 3.3 2.5 2.2 -0.4 1.7 1.7 1.9 1.7 1.7 -4.4 -3.2 -2.8 Netherlands 2.1 2.1 1.5 0.1 1.0 1.2 10.5 10.2 10.2 -1.1 -0.7 -0.5 Belgium 1.2 1.1 1.3 1.8 2.0 1.8 1.0 1.0 1.0 -3.0 -2.5 -2.6 Austria 1.3 1.5 1.6 1.0 1.8 1.6 2.6 2.8 3.1 -1.4 -1.2 -1.0 Finland 1.5 1.2 1.5 0.4 1.3 1.4 -0.6 -0.4 -0.3 -2.3 -2.2 -1.7 Greece 0.3 1.4 1.6 0.2 1.3 1.0 1.0 1.2 1.5 -3.7 -2.4 -2.2 Portugal 1.2 1.2 1.1 0.7 1.4 1.5 0.5 0.7 0.7 -2.8 -2.5 -2.5 Ireland 3.3 2.8 3.0 -0.2 1.1 1.4 12.0 10.0 8.0 -1.1 -1.1 -1.0 UK 2.0 1.2 1.1 0.7 2.3 2.7 -5.2 -4.8 -4.0 -3.3 -2.9 -2.5 Denmark 1.0 1.7 1.8 0.3 1.1 1.4 6.5 6.5 6.5 -2.1 -2.5 -1.9 Norway 0.7 1.6 1.8 3.5 2.7 2.5 4.4 6.2 7.0 3.7 3.9 4.2 Sweden 3.2 2.0 2.3 1.0 1.7 1.9 4.6 4.2 4.4 0.1 -0.2 0.0 Switzerland 1.4 1.5 1.7 -0.3 0.5 0.7 9.5 9.3 9.0 -0.1 -0.1 -0.1 Czech Republic 2.6 2.7 2.7 0.7 2.2 2.2 2.1 1.0 0.5 -0.2 -0.6 -0.6 Hungary 2.4 3.0 2.8 0.4 2.2 2.9 5.6 4.5 4.1 -1.8 -2.5 -2.3 Poland 2.8 3.2 3.4 -0.6 1.6 1.8 -0.5 -1.3 -1.5 -2.6 -3.0 -2.9 United States 1.6 2.5 3.6 1.3 1.9 2.2 -2.8 -3.4 -4.1 -3.2 -3.1 -2.5 Japan 1.0 1.1 1.4 -0.1 0.6 1.2 3.7 3.6 3.7 -4.7 -4.5 -4.0 China 6.7 6.5 6.0 2.0 2.5 2.6 2.4 2.1 1.8 -4.0 -4.0 -4.0 World 3.0 3.5 3.9 4.2 5.2 4.4 *Consumer price data for European countries based on harmonized price indices except for Germany. This can lead to discrepancies compared to other DB publications. Sources: National Authorities, Deutsche Bank Forecasts: German GDP growth by components, % qoq, annual data % yoy DX 2016 2017 2014 2015 2016 2017F 2018F Q1 Q2 Q3 Q4F Q1F Q2F Q3F Q4F Real GDP 1.6 1.7 1.9 1.1 1.5 0.7 0.4 0.2 0.5 0.4 0.3 0.4 0.4 Private consumption 0.9 2.0 2.0 1.2 1.4 0.6 0.2 0.4 0.4 0.3 0.3 0.4 0.3 Gov't expenditure 1.2 2.8 4.2 2.2 1.0 1.1 1.2 1.0 1.1 0.3 0.3 0.3 0.3 Fixed investment 3.4 1.7 2.5 0.9 2.4 1.6 -1.6 0.0 0.5 0.7 0.4 0.4 0.6 Investment in M&E 5.5 3.7 1.7 -1.5 2.4 1.1 -2.3 -0.6 -1.0 0.5 0.2 0.3 0.2 Construction 1.9 0.3 3.1 2.2 2.8 2.3 -1.9 0.3 1.8 1.1 0.5 0.5 0.9 Inventories, pp -0.3 -0.5 -0.4 -0.1 0.0 -0.2 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 Exports 4.1 5.2 2.5 1.8 3.7 1.4 1.2 -0.4 0.4 0.6 0.8 1.1 1.0 Imports 4.0 5.5 3.4 2.5 4.2 1.5 0.1 0.2 0.6 0.7 0.9 1.3 1.1 Net exports, pp 0.4 0.3 -0.1 -0.2 0.0 0.0 0.6 -0.3 -0.1 0.0 0.0 0.0 0.0 Consumer prices* 0.9 0.2 0.5 1.6 1.6 0.3 0.1 0.5 1.1 2.5 1.4 1.3 1.1 Unemployment rate, % 6.7 6.4 6.1 6.2 6.6 6.2 6.1 6.1 6.0 6.1 6.2 6.3 6.4 Industrial production 1.5 0.5 1.3 0.8 1.2 Budget balance, % GDP 0.3 0.7 0.6 0.5 0.2 Public debt, % GDP 74.9 71.2 68.2 65.9 63.5 Balance on current account, % GDP 7.3 8.5 8.8 8.2 7.8 Balance on current account, EUR bn 213 256 275 265 259 *Inflation data for Germany based on national definition. This can lead to discrepancies to other DB publications. Sources: Federal Statistical Office, German Bundesbank, Federal Employment Agency, Deutsche Bank Research New SPD frontrunner unlikely to defeat Merkel 3 | January 30, 2017 F ocus G erm an y Germ any: Strong 2016 GDP growth of 1.9% support ed by temporary t ailwinds — 2016 GDP growth pi ck ed up furt her rel ativ e to the prev ious two year s (1. 9% v s. 1. 7%). Growth wa s strongl y t ilt ed t owards con sum pti on t hanks to sev eral t ail winds (ref ugee c ri si s, l ow i nfl ati on, l abour m ark et strengt h), whi l e sl owing ex port s wei ghed on pr iv at e equi pm ent i nv estm ent . Nearl y half of G DP growth was prov i ded by gov ernm ent ex pendit ure. — Ov erall , the resul t s were broadl y in li ne wit h our ex pectat i ons and do not al t er our outl ook: W it h sev eral t ail winds f ading and a work day eff ect wei ghi ng, G DP growth l ooks set t o slow to 1. 1% i n 2017. W hil e sentim ent poi nt s to upsi de ri sk in the near- t erm we rem ain unconvi nced. 2016 growth: Broad-based, but tilted towards consumption ... T he G erm an econom y gr ew by 1. 9% i n 2016, whi ch was in li ne wi t h our ex pect ati ons and sli ghtl y abov e the Reut ers consensu s of + 1. 8%. It was al so i n l i ne wit h our f orec ast f rom Decem ber 2015. T his was th e stronge st growth rat e si nce 2011 and m oderat ely abov e the prev i ous two year s (1.6% and 1. 7%). G rowth wa s broad-ba sed wit h all m ajor dom estic GDP com ponent s growing, but i t was str ongl y ti lt ed t owards con sum pti on wi t h priv at e (+ 2. 0% v s. 2.0% prev . ) and gov ernm ent (+ 4. 2% v s. 2.7 %) consum pti on c ont ri but i ng 1. 9 pp i n tot al t o headl i ne G DP gr owth. Gross f ix ed i nv estm ent pi ck ed up m oderat el y (2.5% v s. 1. 7%) as construc t i on surged, whi l e equi pm ent i nv estment sl owed. G ross f ix ed i nv estm ents (0. 5 pp) was off set by i nv ent ori es f alli ng (-0. 4 pp dr ag) t he thi rd year i n a row and net ex ports being a sm all drag ( -0.1 pp) giv en the m at eri al sl owdo wn of ex port s (+2. 5% v s. + 5. 2%) and the lesser one by im ports (+ 5. 5% v s. + 3. 4%). ... and weaker than it l ooks W hil e thi s is a v ery strong r esul t ov erall giv en t he ext ernal headwinds, we t hi nk t he strengt h of headli ne growth i s overstat i ng the underl yi ng m om ent um. i . Nearl y half of GDP growth cam e from gov ernm ent ex pendi t ure wit h gov ernm ent consum pti on ( + 4.2% v s. 2. 7%) growi ng t he m ost si nce reunif i cati on giv en the surgi ng ex pendi t ures rel at ed t o the ref ugee cri si s that sho ws up e speci al l y in spendi ng by m unici paliti es. G over nm ent i nv estm ent (+ 5. 8% v s. 3.4%) gr ew the m ost si nce 2009 t hanks to equi pm ent (e. g. mili t ary ) and construc t i on i nv estm ent . Gov ernm ent consum pt i on should sl ow sub stant i all y giv en t he much sm all er num bers of ref ugees arriv i ng i n G erm any ov er the c ourse of 2016 com pared t o 2015 (280. 000 v s. 890. 000). G ov ernm ent i nv estm ent shoul d al so slow do wn som ewhat giv en the hi gh l ev el and capac it y c onstrai nts. i i. Pr iv ate consum pti on was support ed by the posi t iv e im pact on real incom es f rom l ow i nfl ati on as wel l as the r ef ugee i nfl ux (spendi ng of cash support prov i ded by t he gov ernm ent shows up in pr iv ate consum pti on). Bot h eff ects wil l di sappear ov er the c ourse of t his year. i ii. Equi pm ent inv estm ent is an impor t ant gauge of dem and/ ex port ex pect ati ons. Howev er, t he slowdown f rom 3. 7% t o 1. 7% i n 2016 ev en understat e s the weakne ss of priv at e i nv estm ent dem and, whi ch sl owed f rom 2. 7% to onl y 0.9%. W e hav e long argued t hat t he m oderat e lev el of capac i t y uti li zati on com bi ned wi t h slowing ex port growth and t he el ev ated l ev el of uncertai nty wi ll wei gh on i nv estm ent . This shoul d cont i nue to be t he case e speci al l y in H1 2017 due t o the ti ghtl y packed pol iti cal c alendar. -0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 14 15 16 17 DB Ger man Macr o Sur pr ise Index +/- 1 s tandard dev iation D B Ger m an M ac r o S u r p r i s e I n d ex 1 Aver age of las t 20 z - s c or es of data s ur pr ises Val ues abov e (below) 0 indi c ate the data came in better (worse) than ex pec ted Sources : Bl oomberg Financ e LP , Deutsc he Bank Research – 6.0 – 4.0 – 2.0 0.0 2.0 4.0 6.0 92 94 96 98 00 02 04 06 08 10 12 14 16 St rong G D P growth f or thir d year i n a r ow 2 Real, % y oy Source: Federal Stati s tic al O *** ** ** ** ** * * * * ** ** ** ** ** ** ** ** ** ** ** ** ** * ** ** *********** ***** * ** ** ******* *** ******* *** ***** ********** *** ** * ***** **** **** ********* ****** ******* *************** * *** **** ** ********* ******* ******** * ** ****** * * *** * *** * ** * *** ** *** * ** ***** * * *** * New SPD frontrunner unlikely to defeat Merkel 4 | January 30, 2017 Focus Germany Incomes: Tilted towards labour income thanks to strong employment and wage growth Nominal disposable income grew by 2.8% (real: +2.3%) thanks to the ongoing strength of the labour market and muted inflation. Gross wages grew by 3.7% in 2016. Except for 2013 (1.7%) the last seven years showed growth of well above 3% (average 3.8%). In 2016, income growth was driven by employment growth (+1.0% vs. +0.9%) as well as gross wages per employee (2.5% vs. 2.7%). As a result and given moderate productivity growth unit labour costs continued to grow at around 1.5% for the fourth year in a row. Monetary social benefits (e.g. pensions) also continued to rise strongly (+3.3% vs. +3.8%). In contrast, incomes operating surpluses and property income grew by only 2.2% (1.8% prev.) and by only 1.2% on average in the last seven years; a sign of overall flat profitability and low interest rate environment. The savings ratio inched up to 9.8% – the third small increase in a row (2013: 9.0%). Government: Budget surplus despite refugee influx The government surplus at 0.6% of GDP was about in line with our expectation of 0.5%. This was only a very small deterioration relative to 2015 (0.7%) despite the substantial expenditures related to the refugee influx and is likely to be seen sceptical by other European nations as well as the EU Commission with Germany one of the few EU countries achieving a surplus therefore having more fiscal room for an expansionary policy according to the EU Commission. While we expect another sizeable surplus in 2017 (0.5%) they will shrink in the years thereafter given the ageing population, potentially more government spending by the next administration relating e.g. to geopolitical challenges as well as the slowdown of the structural build-up of employment. The budgets of municipalities (EUR -0.2 bn vs. EUR 4 bn) and Laender deteriorated substantially in 2016 given refugee spending, but this was largely compensated by the social security system (EUR 6.8 vs. 2.1 bn) that benefitted from the further labour market improvement. Public debt dropped from 71.2% of GDP to 68.1%. 2016 GDP growth implies strong Q4 in line with expectations (DBe: 0.5%) As usual, the Q4 growth rate and a revised quarterly profile will only be published in February (headline 14th & details 23rd). Assuming no changes to Q1-Q3, Q4 GDP growth could be in +0.5% & 0.8% range. During the press conference the Federal Statistical Office mentioned a rate of "around half a -2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0 10 11 12 13 14 15 16 Private consumption Invest. in machinery & equip. Construction Net-trade Rest Growth contribution to yoy real GDP growth, pp Private consumption contributing more than half of GDP growth in 2016 4 Sources: Federal Statistical O * ce, Deutsche Bank Research – 4.0 – 2.0 0.0 2.0 4.0 6.0 8.0 95 97 99 01 03 05 07 09 11 13 15 Gross wages Unit labour costs Strong wages push up labour costs 5 % yoy Source: Federal Statistical Office -10 -8 -6 -4 -2 0 2 95 97 99 01 03 05 07 09 11 13 15 Budget balance, % of GDP Source: Federal Statistical Office Ongoing surplusses 6 -30 -20 -10 0 10 20 30 92 94 96 98 00 02 04 06 08 10 12 14 16 Government Private Total Source: Federal Statistical O * ce Weak private equipment investment 7 Machinery & equipment investment, % yoy -30 -25 -20 -15 -10 -5 0 5 10 15 20 -80 -60 -40 -20 0 20 40 60 80 100 93 97 01 05 09 13 17 Policy uncertainty (left, inv.) Equipment investment (right) Sources: Federal Statistical Office, “Measuring Economic Policy Uncertainty” by S. Baker, N. Bloom & S. Davis Political uncertainty could weigh on investment 8 Change yoy, index points, 4Q avg., 3Q lead (left); % yoy, real (right) New SPD frontrunner unlikely to defeat Merkel 5 | January 30, 2017 Focus Germany percent" (n-tv). We expect 0.5% qoq based on the available hard data, while sentiment points to upside risks (PMI/ifo: +0.6/+0.8% qoq). Sentiment data for January signals Q1 2017 growth of 0.5% which is slightly above our forecast of 0.4% qoq. Overall, with headline and GDP component growth broadly in line with our expectations we see little need to revise our forecast much beyond some fine tuning after the release of the quarterly results. Outlook 2017: Solid, despite diminished tailwinds 1 The German economy is expected to shift down a gear in 2017, and we forecast a growth rate of 1.1%. Although this means that the rate will be almost halved, around half of this is due to a working day effect. Working day adjusted growth slows from 1.8% to 1.4% only. This would still put the rate of growth above the medium-term potential rate based on Germany’s demographic outlook and productivity trends. The slowdown is based on our expectation that the strong tailwinds that have benefitted private consumption and government spending alike will taper off due to rising inflation and the marked decrease in the number of refugees entering the country. As energy prices rise due to oil prices, inflation is expected to climb from 0.5% to 1.6%. We have also assumed that the influx of refugees will remain at about the level seen in the autumn of 2016 (16,000 per month), i.e. much lower than back in the autumn of 2015 (180,000 per month). With growth of at least one percent, private consumption is, however, likely to remain the main growth pillar thanks to the sustained robust situation on the labour market combined with the increase in the minimum wage. Government spending and gross fixed capital formation in construction are also likely to outstrip the average growth seen over the past five years, increasing by at least 2% and providing a boost to the domestic economy. The increase in construction investment that we are forecasting comes nevertheless as a disappointment in light of the considerable excess demand in the residential construction segment and the government’s infrastructure plans. Capacity bottlenecks due to the shortage of skilled workers and state/regulatory hurdles are, however, likely to stand in the way of greater supply growth. The outlook for Germany’s export economy presents a mixed picture. While the global economy is expected to show stronger growth in 2017, the European economy is likely to lose momentum. Since this region accounts for a very large proportion of German exports, this means that any acceleration in demand will only be marginal. All in all, we expect Germany’s export growth to remain weak. Together with the ongoing political uncertainty, this will create an unfavourable investment environment and is likely to put a damper on industrial production. We expect machinery and equipment investment to decline in 2017, although it should pick up during the course of the year. Note that the negative year-on- year rate of machinery and equipment investment is solely due to a negative carry-over effect which might be altered by possible revisions of 2016’s quarterly profile. Thanks to the robust domestic economy, Germany should once again be able to generate a slight budget surplus. Heiko Peters (+49 69 910-21548, heiko.peters@db.com) Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) 1 See for details Focus Germany – Outlook 2017: Solid, despite diminished tailwinds, Deutsche Bank Research, 21 December 2016. -2 -1 0 1 2 11 12 13 14 15 16 17 Composite PMI ifo business expec. Solid sentiment 9 Standardized values Sources: Markit, ifo, Deutsche Bank Research -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 16 17 18 Private consumption Gov't expenditure Investment in M&E Construction Inventories Net exports Real GDP Domestic economy should remain major contributor to GDP growth 10 Growth contributions to GDP growth, pp, % yoy Sources: Statistisches Bundesamt, Deutsche Bank Research -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 13 14 15 16 17 Core Energy Food Headline % yoy, pp Sources: Federal Statistical Office, Deutsche Bank Research Energy pushes up inflation in 2017 11 New SPD frontrunner unlikely to defeat Merkel 6 | January 30, 2017 Focus Germany The view from Berlin Martin Schulz’s unexpected nomination likely to push the SPD’s campaign but unlikely to derail Merkel Last Tuesday SPD leader Gabriel unexpectedly announced major switches among the party’s top personnel: Martin Schulz, until recently president of the European Parliament (EP), will replace Gabriel in two regards. First Schulz and not Gabriel is to run as the party’s candidate for chancellorship, i.e. as Angela Merkel’s opponent. This decision, which is already approved by the party’s executive committee, came as a big surprise, given recent reports that party leader Sigmar Gabriel was willing to run. Second, Schulz shall replace Gabriel as SPD party leader, too. The new leader shall be elected at an extraordinary party convention in March. This will be a test for the support from his party. Mr. Gabriel has refrained from both positions not least citing private reasons. But he has also recognized his difficulties to propel the SPD’s meagre popularity ratings, given his failure to succeed in this respect for quite some time now. “If I now stand, I would fail and so with me would the SPD” Gabriel told the Stern magazine (translation FT). This changes among the SPD’s top echelons will be accompanied by a cabinet reshuffle among the SPD’s ministers. Gabriel, so far Federal Minister for Economic Affairs, will take over the Foreign Office from Frank-Walter Steinmeier (SPD), who very likely will be elected as the new Federal President on February 12. Brigitte Zypries, who was Minister of Justice from 2002 to 2009 and has been state secretary and Gabriel’s right-hand woman in the past few years, will succeed her boss as the new Minister for Economic Affairs. Compared to the top news these changes are of minor importance as the federal government is unlikely to launch major initiatives in the remaining few months until the federal election on September 24. Mr. Schulz’s nomination has the potential to boost the SPD‘s election campaign. For quite some time the SPD has been struggling with poor approval ratings. Mr. Gabriel, confronted with low individual popularity ratings, too, has not been able to put his party back on track for success. With meagre ratings of 21% on average in recent surveys, the SPD is about 15pps behind the CDU/CSU and thus lacks any real prospect for regaining power at the federal level. There are indications that Martin Schulz might perform better. The 61-year-old Schulz is said to be a passionate politician and a good speaker, knowing how to address the broad public and especially his party’s (potential) followers. In his speeches in Germany, he has frequently made his mark as a proponent of traditional social-democratic ideas, i.e. solidarity and social justice, besides his engagement for the European idea and especially for extension of the EP’s influence and powers. According to surveys, he has much better prospects as Chancellor Merkel’s oponent than Sigmar Gabriel. In early January 57% and 56% of those asked in the ARD-Deutschland-Trend stated they were satisfied with the performance of Mr. Schulz and Angela Merkel, respectively, while Mr. Gabriel at 43% even ranked behind CSU leader Seehofer (45%). Germany’s top managers from private and public enterprises, too, appear to be convinced that Mr. Schulz is the most promising SPD candidate. According to a recent survey (Allensbach, FAZ) only 19% of the managers took the view that Mr. Gabriel should run while 46% and 26% named Martin Schulz and Olaf Scholz, Hamburg’s popular First Major, respectively. Albeit long-known in Brussels, Schulz will be a relatively new face on the domestic political scene, in contrast to Chancellor Merkel, who has been in office for more than 11 years now. This might give the SPD’s campaign new momentum at least for the time being. A special survey (ARD Deutschland- 0 5 10 15 20 25 30 35 40 CDU/CSU SPD Greens Left AfD FDP Others Major German political parties' popularity* 1 Source: Wahlrecht.de * Average of major surveys (Allensbach, Infratest Dimap, Forsa, Forschungsgruppe Wahlen, TNS Emnid) Most recent surveys from January 2017, % 0 10 20 30 40 50 60 70 Merkel Gabriel Merkel Schulz Leading SPD politicians' prospects for the imminent campaign 2 Source: Forschungsgruppe Wahlen: ZDF Politbarometer January 13, 2017 Whom the Germans would prefer as chancellor in a direct comparison, % of those asked New SPD frontrunner unlikely to defeat Merkel 7 | January 30, 2017 Focus Germany Trend) one day after Schulz’s nomination is indicative of such reasoning. According to the survey 64% of those asked and even 81% of the SPD supporters amongst them stated that he is a good candidate for the SPD. Furthermore, if Germans could elect the chancellor in a direct ballot, Schulz would get 41% of the votes and thus even catch up with Merkel, also at 41%. However, these are spontaneous statements and hardly a new trend, so far. Schulz has already demonstrated his ability to campaign successfully, when he was the SPD’s top candidate for the European election in May 2014. In this election the SPD got 27.3% of the votes in Germany. This was a substantial increase of 6.5pps compared to the previous EP election in 2009. The result also exceeded the SPD’s popularity ratings that hovered around 26% at the time. Due to this success Mr. Schulz has become one of the SPD’s political heavyweights, while he has been a member of the party’s executive committee since 1999. In the imminent campaign Schulz will be in a position to act in line with his and his party’s ideas. In contrast to Mr. Gabriel, who is a member of Merkel’s cabinet and also Vice Chancellor, Schulz can challenge the Chancellor more directly and consistently. This might also have been Schulz’s reason for not taking over the Foreign Office despite frequent speculation in the media. Mr. Gabriel would have faced another dilemma, too. It would have been difficult for him to consistently advocate the SPD‘s key campaign issues, namely social justice and broader redistribution, without conflicting with positions he had advocated as the Economy Minister. However, Schulz’s nomination also entails some risks for the SPD. So far Schulz has no experience with major government positions. Before becoming a member of the EP in 1999, he was the mayor of a small town (with about 35,000 inhabitants) near Aachen for about 10 years. Prior to that he worked as a bookseller. His critics have stressed the difference between his tasks as President of the EP and that of a Federal Chancellor. In Strasbourg and Brussels, Schulz had to arrange compromises by balancing divergent interests – in doing so he benefited from his close network among European politicians and his knowledge of several European languages. A head of government, however, has to take tough decisions, too. And it is questionable whether intransparent “horse-trading” is still accepted among the general public. Furthermore his regional background as a politician from North Rhine-Westphalia (NRW) could become a problem if the SPD suffered marked losses in the state election there on May 14. This election in Germany’s most populous state is said to be the litmus test for the general election in September. According to current polls, the ruling SPD-Green coalition in NRW is unlikely to retain its majority due to a substantial weakening of the SPD, which shows only a narrow lead over the CDU with 32% vs 30% (election outcome 2012: SPD 39%, CDU 26%). However, all in all the decision in favour of Schulz is likely to be positive for the SPD. But the party would need an enormous upswing in popularity, by about 7pps at least, to alter the arithmetic of German political landscape substantially. Only with such a boost would the pet project of the left in Germany, namely a red-red-green coalition (r2g) between the SPD, the Left Party and the Greens, be arithmetically feasible. However, it seems unlikely that such a strong tailwind will emerge in favour of the SPD notwithstanding the new candidate. In addition, with respect to important issues like internal and external security including relations with Russia the SPD’s political ideas hardly fit with those of the left. In addition, Mr. Schulz is not known as a friend of such an alliance. The recent nominations do not signal a new course for the SPD. Like Gabriel, Schulz belongs to the SPD‘s traditionalist wing, and both have been close allies. The SPD will primarily campaign for social justice in line with Schulz’s own political beliefs. But he is likely to bring European policy issues to the limelight, -0.5 0 0.5 1 1.5 2 2.5 Chancellor Merkel SPD leader Gabriel Foreign Minister Steinmeier Finance Minister Schäuble CSU leader Seehofer Major politicians' approval ratings 3 Approval rating for the respective politician on a scale from -5 to +5 Source: Forschungsgruppe Wahlen, ZDF Politbarometer 0 5 10 15 20 25 30 35 40 45 CDU/CSU SPD FDP Greens Left Party AfD German parties' popularity 4 Results of the Allensbach survey, % Source: IfD Allensbach * Result of the federal election on September 22 New SPD frontrunner unlikely to defeat Merkel 8 | January 30, 2017 Focus Germany too. In contrast to the CDU/CSU and especially Finance Minister Schäuble, he will probably advocate intensified German support for the partner countries in Southern Europe at least in the form of a more expansive fiscal policy stance in Germany. If the SPD were to moderately gain support in the next months and thus be able to spoil the CDU/CSU’s prospect for a coalition with the Greens, Mr. Schulz and his party would likely be confronted with the CDU/CSU’s request to participate in a renewed grand coalition. Martin Schulz, who as President of the EP co- operated closely and efficiently with the conservative President of the European Commission Jean-Claude Juncker, would likely not resist such an alliance. In such a scenario the SPD would probably not only insist on more political clout but also bring in a self-confident and power-conscious new Vice-Chancellor. Barbara Böttcher (+49 69 910-31787, barbara.boettcher@db.com) Dieter Bräuninger (+49 69 910-31708, dieter.braeuninger@db.com) 0 5 10 15 20 25 30 35 40 CDU/CSU-SPD SPD-Greens CDU/CSU-Greens CDU/CSU-FDP % of those asked Source: Forschungsgruppe Wahlen: ZDF Politbarometer The Germans' favourite government coalitions 5 New SPD frontrunner unlikely to defeat Merkel 9 | January 30, 2017 Focus Germany DB German Macro Surprise Index The DB German Macro Surprise Index compares published economic data with market forecasts and thus provides clues as to the direction of future forecast revisions. 2 Heiko Peters (+49 69 910-21548, heiko.peters@db.com) 2 See for details Focus Germany. August 4, 2014. Last 20 published economic data for Germany DX Bloomberg Tickers Indicator Reporting month Publication date Current value Bloomberg consensus Surprise Standardised surprise Quantile rank GRIPIMOM Index Industrial production (% mom) 10 2016 07/12/16 0.5 0.8 -0.3 -0.2 0.4 GRCAEU Index Current Account Balance (EUR bn) 10 2016 09/12/16 19.4 22.0 -2.6 -1.1 0.1 GRZECURR Index ZEW Survey Current Situation 12 2016 13/12/16 63.5 59.0 4.5 0.5 0.7 GRZEWI Index ZEW Survey Expectations 12 2016 13/12/16 13.8 14.0 -0.2 0.0 0.5 GRCP20YY Index CPI (% yoy) 11 2016 13/12/16 0.8 0.8 0.0 0.2 0.3 GRIFPBUS Index IFO Business Climate 12 2016 19/12/16 111.0 110.6 0.4 0.2 0.6 GRIMP95Y Index Import Price Index (% yoy) 11 2016 22/12/16 0.3 -0.2 0.5 0.7 0.9 MPMIDEMA Index Markit Manufacturing PMI 12 2016 02/01/17 55.6 55.5 0.1 0.1 0.5 GRUECHNG Index Unemployment Change (000's mom) 12 2016 03/01/17 -17.0 -5.0 12.0 0.3 0.6 MPMIDESA Index Markit Services PMI 12 2016 04/01/17 54.3 53.8 0.5 0.6 0.8 GRIORTMM Index Factory Orders (% mom) 11 2016 06/01/17 -2.5 -2.4 -0.1 -0.1 0.5 GRFRIAMM Index Retail Sales (% mom) 11 2016 06/01/17 -1.7 -0.9 -0.8 -0.4 0.3 GRCAEU Index Current Account Balance (EUR bn) 11 2016 09/01/17 24.6 22.1 2.5 0.4 0.7 GRIPIMOM Index Industrial production (% mom) 11 2016 09/01/17 0.4 0.6 -0.2 -0.1 0.5 GRZECURR Index ZEW Survey Current Situation 1 2017 17/01/17 77.3 65.0 12.3 1.7 1.0 GRZEWI Index ZEW Survey Expectations 1 2017 17/01/17 16.6 18.4 -1.8 -0.2 0.4 GRCP20YY Index CPI (% yoy) 12 2016 18/01/17 1.7 1.7 0.0 0.2 0.3 MPMIDESA Index Markit Services PMI 1 2017 24/01/17 53.2 54.5 -1.3 -1.4 0.1 MPMIDEMA Index Markit Manufacturing PMI 1 2017 24/01/17 56.5 55.4 1.1 1.1 0.9 GRIFPBUS Index IFO Business Climate 1 2017 25/01/17 109.8 111.3 -1.5 -1.3 0.1 Sources: Bloomberg Finance LP, Deutsche Bank Research -0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 14 15 16 17 DB German Macro Surprise Index +/- 1 standard deviation DB German Macro Surprise Index Average of last 20 z-scores of data surprises Values above (below) 0 indicate the data came in better (worse) than expected Sources: Bloomberg Finance LP, Deutsche Bank Research New SPD frontrunner unlikely to defeat Merkel 10 | January 30, 2017 Focus Germany Export Indicator: demand impact slightly stronger in 2017 – price impact about neutral recently The Export Indicator identifies the effects on German exports of changes in global demand on the one hand, and currency movements on the other (price impact). 3 Heiko Peters (+49 69 910-21548, heiko.peters@db.com) 3 See for details Focus Germany, March 3, 2016. New SPD frontrunner unlikely to defeat Merkel 11 | January 30, 2017 Focus Germany Dieter Bräuninger (+49 69 910-31708, dieter.braeuninger@db.com) Germany: Events of economic-, fiscal- and euro-politics DX Date Event Remarks 3 Feb Informal European Council, Malta Head of States and Governments from 27 Member States will debate on the future of an EU 27 and prepare the celebrations to mark the 60th anniversary of the Treaty of Rome. 12 Feb Election of the Federal President Given the agreement of the CDU, CSU and SPD party leaders in November 2016, the Federal Convention is very likely to elect Frank-Walter Steinmeier (SPD), to date Minister for Foreign Affairs, with a huge majority. 20-21 Feb Eurogroup and ECOFIN, Brussels Situation in the euro area, thematic discussion on growth and jobs – Investment: common principles. 9 March ECB Governing Council meeting, press conference Review of the monetary policy stance. 9-10 March European Council, Brussels Poss. debate on the implementation of strategies for the Single Market (digital single market, capital market union and energy union) as part of the Bratislava Roadmap. 15 March Elections in the Netherlands The right-wing PVV is currently the most popular party (~20%), marginally above PM Rutte’s VVD conservatives. Polls suggest a government can be formed without the PVV. 17-18 March G20 Finance Ministers and Central Bank Governors Meeting, Baden-Baden Debates on structural reforms to strengthen economic resilience, on measures to improve investment conditions, esp. in Africa (‘Compact with Africa’ initiative), on enhancing reliability and fairness in taxation and on digitalization among others. 20-21 March Eurogroup and ECOFIN, Brussels Fiscal surveillance: (poss.) EDP implications of the Commission winter forecast, macro-economic imbalances procedures – in depth reviews of euro area countries, thematic discussion on growth and jobs – pensions, (poss.) Greece – state of play among others. 25 March EU Heads of states and governments, Rome Meeting to celebrate the 60s anniversary of the Treaty of Rome, finalising the reflection process on the EU's future. 26 March State election in the Saarland Establishment of a renewed CDU-SPD coalition headed by MP Kramp- Karrenbauer likely, as both parties lack feasible alternative options. End-March UK government Triggering Art. 50 TEU? We still consider a notification by end-March the most likely scenario. 7-8 April Eurogroup and informal ECOFIN, Malta (Poss.) Thematic discussion on growth and jobs – ease of doing business and non-price competitiveness, preparation of international meetings: exchange rate developments among others. 21-23 April IWF and World Bank Spring Meeting, Washington D.C. Debates on the situation in the global economy and on international financial markets as well as foreign exchange markets. Source: Deutsche Bank Research New SPD frontrunner unlikely to defeat Merkel 12 | January 30, 2017 Focus Germany Heiko Peters (+49 69 910-21548, heiko.peters@db.com) Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) Germany: Data calendar DX Date Time Data Reporting period DB forecast Last value 30 Jan 2017 14:00 Consumer prices preliminary (Index, sa), pch mom (yoy) January 0.1 (2.6) 0.7 (1.7) 31 Jan 2017 08:00 Retail sales (Index, sa), pch mom December -0.2 (0.0) -1.7 (0.0) 3 Jan 2017 10:00 Unemployment rate (%, sa) January 6.0 6.0 6 Feb 2017 08:00 New orders manufacturing (Index, sa), pch mom December 4.0 -2.5 7 Feb 2017 08:00 Industrial production (Index, sa), pch mom December 0.0 0.4 9 Feb 2017 08:00 Trade balance (EUR bn, sa) December 22.7 21.8 9 Feb 2017 08:00 Merchandise exports (EUR bn, sa), pch mom (yoy) December 0.1 3.9 9 Feb 2017 08:00 Merchandise imports (EUR bn, sa), pch mom (yoy) December -1.1 (4.5) 3.5 (3.8) 14 Feb 2017 08:00 Real GDP (Index, sa), % qoq Q4 2016 0.5 (0.0) 0.2 (0.0) 21 Feb 2017 09:30 Manufacturing PMI (Flash) February 55.5 56.5 21 Feb 2017 09:30 Services PMI (Flash) February 53.5 53.2 22 Feb 2017 10:30 ifo business climate (Index, sa) December 109.5 109.8 Sources: Deutsche Bank Research, Federal Statistical Office, Federal Employment Agency, ifo, Markit New SPD frontrunner unlikely to defeat Merkel 13 | January 30, 2017 Focus Germany Financial forecasts DX US JP EMU GB CH SE DK NO PL HU CZ Key interest rate, % Current 0.625 -0.10 0.00 0.25 -0.75 -0.50 0.05 0.50 1.50 0.90 0.05 Mar 17 0.625 -0.10 0.00 0.25 -0.75 -0.50 0.05 0.50 1.50 0.90 0.05 Jun 17 0.875 -0.10 0.00 0.25 -0.75 -0.50 0.05 0.50 1.50 0.90 0.05 Dec 17 1.125 -0.10 0.00 0.25 -0.75 -0.50 0.05 0.50 1.50 0.90 0.05 3M interest rates, % Current 1.04 0.06 -0.33 0.36 Mar 17 0.98 0.05 -0.30 0.40 Jun 17 1.23 0.05 -0.30 0.40 Dec 17 1.48 0.05 -0.30 0.40 10J government bonds yields, % Current 2.56 0.09 0.43 1.56 Mar 17 3.00 0.05 0.40 1.60 Jun 17 3.60 0.05 0.50 1.75 Dec 17 3.10 0.00 0.85 1.90 Exchange rates EUR/USD USD/JPY EUR/GBP GBP/USD EUR/CHF EUR/SEK EUR/DKK EUR/NOK EUR/PLN EUR/HUF EUR/CZK Current 1.07 113.36 0.85 1.26 1.07 9.44 7.44 8.92 4.36 310.98 27.01 Mar 17 1.03 117.00 0.90 1.14 1.06 9.46 7.46 9.08 4.53 313.27 27.00 Jun 17 1.00 120.00 0.89 1.12 1.04 9.39 7.46 9.05 4.51 315.51 27.00 Dec 17 0.95 125.00 0.90 1.06 1.00 9.25 7.46 9.00 4.55 320.00 26.07 Sources: Bloomberg, Deutsche Bank New SPD frontrunner unlikely to defeat Merkel 14 | January 30, 2017 Focus Germany German data monitor DX Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Aug 2016 Sep 2016 Oct 2016 Nov 2016 Dec 2016 Jan 2017 Business surveys and output Aggregate Ifo business climate 106.8 107.8 108.0 110.6 106.3 109.5 110.5 110.4 111.0 109.8 Ifo business expectations 100.6 101.8 102.3 105.6 100.1 104.5 106.0 105.4 105.5 103.2 Industry Ifo manufacturing 100.6 101.9 102.5 105.3 100.8 104.1 105.8 104.8 105.2 104.4 Headline IP (% pop) 1.8 -0.8 0.3 2.9 -1.3 0.5 0.4 Orders (% pop) 0.8 -0.3 0.6 0.9 -0.4 5.0 -2.5 Capacity Utilisation 85.0 84.4 84.8 85.7 86.0 Construction Output (% pop) 1.4 -5.3 1.9 1.0 -1.3 2.0 4.0 Orders (% pop) 6.7 0.2 -5.2 -1.9 1.7 9.0 -1.0 Ifo construction 122.7 124.6 126.9 129.8 126.2 128.4 129.0 129.6 130.7 129.2 Consumer demand EC consumer survey -6.1 -3.2 -2.5 -1.5 -2.5 -2.9 -2.5 -1.2 -0.7 Retail sales (% pop) 0.6 -0.3 0.2 0.0 -1.4 2.7 -1.7 New car reg. (% yoy) 4.5 9.4 4.2 -0.3 8.3 9.4 -5.6 1.5 3.7 Foreign sector Foreign orders (% pop) 2.1 -1.4 2.6 -0.2 -0.1 4.6 -2.3 Exports (% pop) 0.5 0.4 -0.1 3.4 -0.9 0.5 3.9 Imports (% pop) -0.1 -1.2 1.4 1.9 -0.8 1.2 3.5 Net trade (sa EUR bn) 61.5 65.6 62.0 21.4 21.1 20.7 21.8 Labour market Unemployment rate (%) 6.2 6.1 6.1 6.0 6.1 6.1 6.0 6.0 6.0 Change in unemployment (k) -37.0 -28.7 -21.3 -27.0 -8.0 -1.0 -14.0 -6.0 -17.0 Employment (% yoy) 1.2 1.1 0.9 0.8 0.8 0.8 0.7 Ifo employment barometer 108.4 108.3 109.0 111.2 108.6 110.1 110.7 111.1 111.8 Prices, wages and costs Prices Harmonised CPI (% yoy) 0.1 0.0 0.4 1.0 0.3 0.5 0.7 0.7 1.7 Core HICP (% yoy) 1.1 1.0 1.1 1.2 1.0 1.1 1.1 1.0 1.4 Harmonised PPI (% yoy) -2.8 -2.6 -1.7 0.2 -1.6 -1.4 -0.4 0.1 1.0 Commodities, ex. Energy (% yoy) -14.6 -6.5 2.9 19.2 4.1 4.7 9.1 19.3 29.5 Oil price (USD) 35.1 46.9 47.0 51.1 47.1 47.3 51.4 47.1 54.9 Inflation expectations EC household survey 5.3 3.6 6.2 10.0 7.2 6.4 7.4 11.8 10.8 EC industrial survey -2.4 1.7 3.0 6.2 1.6 2.7 5.4 6.8 6.3 Unit labour cost (% yoy) Unit labour cost 2.1 0.4 1.5 Compensation 2.6 1.9 2.3 Hourly labour costs 3.8 0.7 2.6 Money (% yoy) M3 7.8 7.2 6.6 7.2 6.6 5.3 5.1 M3 trend (3m cma) 7.1 6.4 5.7 Credit - private 2.0 2.7 2.6 2.2 2.6 3.0 2.9 Credit - public -9.1 9.7 -0.1 9.5 -0.1 4.2 5.3 % pop = % change this period over previous period. Sources: Deutsche Bundesbank, European Commission, Eurostat, Federal Employment Agency, German Federal Statistical Office, HWWI, ifo, Markit Focus Germany Our publications can be accessed, free of charge, on our website www.dbresearch.com You can also register there to receive our publications regularly by E-mail. Ordering address for the print version: Deutsche Bank Research Marketing 60262 Frankfurt am Main Fax: +49 69 910-31877 E-mail: marketing.dbr@db.com Available faster by E-mail: marketing.dbr@db.com Focus Germany deals with macroeconomic and economic policy issues in Germany. Each issue also contains a timetable of financial and economic policy events as well as a detailed data monitor of German economic indicators. Focus Germany is a monthly publication. * Focus Germany: Outlook 2017: Solid, despite diminished tailwinds ......................... December 21, 2016 * Focus Germany: Subdued industry outlook dampens wage growth ............................................... October 28, 2016 * Focus Germany: Difficult times for German savers ......................................................October 4, 2016 * Low returns, political discontent – Germans explore riskier options ............................. September 2, 2016 * ECB helps industry and boosts property prices ................ July 27, 2016 * German consumer vs Brexit .............................................. July 4, 2016 * Growth and fiscal outlook: Risks remain .......................... June 3, 2016 * How to pay for retirement? ............................................. May 12, 2016 * Solid growth but difficulties for exports and construction ............................................................... April 4, 2016 * 2016 GDP growth: External headwinds & domestic tailwinds ......................................................... March 3, 2016 * Above potential growth, no wage excesses ............... January 28, 2016 * Pick-up in the domestic economy in 2016 .............. December 16, 2015 * Strong domestic demand – but no excesses ............ November 5, 2015 * Migration, urbanisation, inflation ..................................October 2, 2015 * Solid growth, budget surpluses but new challenges ................................................ September 1, 2015 © Copyright 2017. 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