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December 2, 2014
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Underlying growth of the German economy has slowed in Q3. After average quarterly growth rates of over 0.3% qoq in the last 1 ½ years, GDP expanded just 0.1% in Q3. We expect about stagnation in the next two quarters with a risk of a negative print as sentiment has weakened further in October/November. The little momentum of global trade since 2012 points towards structural changes, which will affect German exports in particular. German export growth should therefore remain relatively muted during the next few years. We forecast average real German export growth at the lower end of a range of 4%-6% between 2014 and 2019, which should be buttressed by a depreciation of the euro. [more]
Focus Germany: Structural downshift in global trade burdens growth outlook Current Issues Business cycle Meagre Q3 GDP expansion: Harbinger of weak winter half. Underlying growth of the German economy has slowed in Q3. After average quarterly growth rates of over 0.3% qoq in the last 1 ½ years, GDP expanded just 0.1% in Q3. The growth composition was one sided and not encouraging for Q4 growth. While consumption remained the major growth contributor in Q3 thanks to the robust labour market, investment in machinery & equipment slumped as moderate capacity utilization, concerns over global growth prospects and geopolitical risks are taking their toll. Inventories were a major drag. Net exports were slightly positive. Due to upward revisions to H1 GDP we see 2014 GDP at 1.4% now. We expect about stagnation in the next two quarters with a risk of a negative print as sentiment has weakened further in October/November. The growth composition is likely to be tilted towards private consumption with exports and investment being a drag. This will provide a weak starting base for 2015 GDP growth. Sluggish German exports – cyclical or structural? After world trade slumped in 2009 during the global financial crisis, it rebounded strongly in 2010 and 2011. Since 2012, however, global trade growth has been anaemic and has in contrast to past decades been even lower than GDP growth. Weaker global trade growth is already leaving its imprint in Germany’s muted export performance. For Germany the questions are therefore as follows: Is the relative slowdown in German exports due to temporary cyclical factors or lasting structural changes? Can exports fulfil their usual role as a motor of growth in the next few years? The little momentum generated since 2012 points towards structural changes. The establishment of global value chains has probably reached a plateau for the time being; the Chinese economy’s stronger domestic focus will provide little stimulus for world trade; and the negotiations about new major trade agree- ments are becoming increasingly difficult. In addition, the G20 nations have adopted new restrictive measures which dampen trade. Comparing the actual development of German exports with the estimate provided by our trade model indicates that the lower elasticity with regard to global growth is structural in nature and that probably a level shift occurred. We forecast average real German export growth at the lower end of a range of 4%-6% between 2014 and 2019, which should be buttressed by a depreciation of the euro. Author s 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 Ralf Hoffmann Content Page Forecast tables ...............................................2 Meagre Q3 GDP expansion: Harbinger of weak winter half. ............................................3 Sluggish German exports – cyclical or structural? .......................................................7 Chart of the month ........................................ 15 DB German Macro Surprise Index ................ 16 Chartbook ..................................................... 17 Event calendar .............................................. 24 Data calendar ............................................... 25 Financial forecasts ........................................ 26 Data monitor ................................................. 27 December 2, 2014 Focus Germany Structural downshift in global trade burdens growth outlook Focus Germany 2 | December 2, 2014 Current Issues Economic forecasts DX Real GDP Consumer Prices* Current Account Fiscal Ba lance (% growth) (% growth) (% of GDP) (% of GDP) 2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F 2014F 2015F 2016F Euroland 0.7 0.8 1.2 0.5 0.8 1.4 2.2 2.5 2.4 - 2.6 - 2.5 - 2.4 Germany 1.4 0.8 1.2 1.0 1.2 1.5 7.2 6.4 6.2 0.1 - 0.5 - 0.7 France 0.4 0.7 1.4 0.6 0.8 1.3 - 1.8 - 1.8 - 1.5 - 4.4 - 4.2 - 3.9 Italy - 0.4 0.3 0.8 0.2 0.6 1.1 1.6 1.3 1.2 - 3.0 - 2.9 - 2.7 Spain 1.2 1.7 1.7 - 0.1 0.7 1.4 0.5 0.7 1.1 - 5.6 - 4.6 - 4.0 Netherlands 0.7 1.7 1.1 0.4 0.8 1.4 10.9 11.4 11.5 - 2.5 - 2.0 - 1.9 Belgium 0.9 0.7 1.3 0.6 1.0 1.5 1.0 0.7 0.4 - 2.8 - 2.9 - 2.7 Austria 0.7 0.7 1.3 1.5 1.5 1.7 1.5 1.8 2.4 - 3.0 - 1.9 - 1.2 Finland - 0.4 0.4 1.1 1.3 1.3 1.5 - 1.9 - 1.7 - 1.3 - 2.9 - 2.9 - 2.3 Greece 0.4 2.5 2.9 - 1.1 0.0 1.0 0.0 0.5 1.0 - 1.6 0 .2 1.6 Portugal 1.0 1.0 1.5 - 0.1 0.8 1.3 0.5 0.8 1.0 - 4.7 - 3.7 - 3.4 Ireland 3.7 2.7 3.0 0.3 0.8 1.6 5.5 5.5 5.0 - 3.8 - 3.1 - 2.9 UK 3.1 2.5 2.3 1.7 1.9 2.0 - 4.0 - 3.2 - 3.0 - 4.6 - 3.5 - 2.1 Denmark 1.0 2.0 1.8 1.0 1.5 2.0 6.7 6.4 6.0 0.0 - 1.0 - 2.0 Norway 2.4 2.5 2.5 1.8 2.2 2.0 11.0 10.5 10.0 7.0 6.7 6.5 Sweden 2.2 2.6 2.5 0.2 1.5 2.0 6.0 5.5 5.0 - 1.5 - 1.0 - 0.5 Switzerland 1.3 1.8 2.0 0.0 0.3 0.6 12.0 11.0 10.5 0.0 0.2 0.5 Czech Republic 2.2 2.4 2.8 0.5 1.8 2.0 - 1.4 - 1.2 - 1.5 - 2.1 - 2.3 - 2.4 Hungary 3.2 2.3 3.0 0.0 2.1 3.3 1.9 2.0 1.5 - 2.9 - 2.5 - 2.8 Poland 3.0 3.2 3.8 0.2 1.1 2.3 - 1.7 - 1.8 - 2.2 4.5 - 2.9 - 2.8 United States 2.3 3.5 3.1 1.7 1.3 2.4 - 2.5 - 2.4 - 2.5 - 2.9 - 2.5 - 2.9 Japan 0.5 1.4 1.6 2.9 1.4 1.0 0.4 1 .9 2.4 - 7.2 - 6.4 - 5.4 China 7.3 7.0 6.7 2.2 2.6 3.0 3.1 3.4 3.3 - 2.1 - 2.5 - 3.0 World 3.1 3.6 3.7 3.5 3.5 3.6 *Consumer price data for European countries based on harmonized price indices except for Germany. This can lead to discrepa ncies compared to other DB publications. Sources: National Authorities, Deutsche Bank Forecasts: German GDP growth by components, % qoq, annual data % yoy DX 2014 2015 2012 2013 2014F 2015F 2016F Q1 Q2 Q3 Q4F Q1F Q2F Q3F Q4F Real GDP 0.4 0.1 1.4 0.8 1.2 0.8 - 0.1 0.1 0.0 0.1 0.2 0.3 0.4 Private consumption 0.7 0.8 1.1 1.1 0.9 0.5 0.1 0.7 0.3 0.2 0.2 0.2 0.3 Gov't expenditure 1.2 0.7 1.2 0.9 0.3 0.2 0.4 0.6 0.2 0.1 0.2 0.1 0.2 Fixed investment - 0.7 - 0.6 3.0 1.6 2.4 2.8 - 1.8 - 0.9 0.3 0.3 0.6 1.0 0.7 Investment in M&E - 3.1 - 2.4 2.9 0.9 4.2 1.7 0.4 - 2. 3 - 1.0 0.0 0.7 2.0 1.0 Construction 0.6 - 0.1 3.4 2.3 2.3 4.2 - 3.9 - 0.3 1.0 0.7 0.7 0.7 0.7 Inventories, pp - 1.4 0.2 - 0.3 - 0.3 - 0.2 - 0.1 0.1 - 0.5 0.0 0.0 - 0.1 0.0 0.0 Exports 2.8 1.6 3.9 4.7 5.2 - 0.2 1.2 1.9 0.5 0.7 1.0 1.2 1 .5 Imports 0.0 3.1 3.7 5.5 5.4 - 0.1 1.1 1.7 1.2 1.0 1.2 1.5 1.5 Net exports, pp 1.3 - 0.5 0.3 0.0 0.3 - 0.1 0.1 0.2 - 0.2 - 0.1 0.0 0.0 0.1 Consumer prices* 2.0 1.5 1.0 1.2 1.5 1.2 1.1 0.8 0.8 1.2 1.2 1.2 1.3 Unemplo yment rate, % 6.8 6.9 6.7 6.8 7.1 6.8 6.7 6.7 6.7 6.7 6.7 6.8 6.9 Industrial production - 0.4 0.1 1.8 1.0 0.0 Budget balance, % GDP 0.1 0.0 0.1 - 0.5 - 0.7 Public debt, % GDP 81.0 78.4 74.0 72.4 70.6 Balance on current account, % GDP 7.1 6.7 7.2 6.4 6.2 Balance on current account, EUR bn 196 192 207 190 189 *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 Focus Germany 3 | December 2, 2014 Current Issues Meagre Q3 GDP expansion: Harbinger of weak winter half — The underlying growth of the German economy has slowed in Germany in Q3. After average quarterly growth rates of over 0.3% qoq in the last 1 ½ years, GDP expanded just 0.1% in Q3. — The growth composition was one sided and not encouraging for Q4 growth. While consumption remained the major growth contributor in Q3 thanks to the robust labour market, investment in machinery & equipment slumped as concerns over global growth prospects, geopolitical risks and moderate capacity utilization levels took their toll. Inventories were a major drag.Net exports were slightly positive. Due to upward revisions to H1 GDP we see 2014 GDP at 1.4% now. — We expect about stagnation in the next two quarters with a risk of a negative print as sentiment has weakened further in October/November. The growth composition is likely to be tilted towards private consumption with exports and investment being a drag. This will provide a weak starting base for 2015 GDP growth. Our 0.8% forecast marks the lower end of the November’s Consensus economics edition. Underlying growth momentum has slowed in Q3 Detailed GDP numbers confirmed the 0.1% qoq expansion in Q3. The economy did not contract again in Q2. But Q2’s -0.1% was a pay-back to the abnormally mild weather conditions which propped Q1 growth to 0.8% qoq. Taken together growth averaged a good 0.3% qoq in H1, the same pace observed over the course of 2013. Geopolitics and growth concerns curbed investment The main source of weakness in Q3 was the decline of investment in machinery & equipment (-2.3% vs. +0.4% prev.). This was a 0.2%-point drag on overall growth and a reaction to worsening export expectations, geopolitical risks and low capacity utilization. Ifo export expectations dropped by over 6 points from May to September and only recovered somewhat in October/November. While the drop looks a bit strong given the until recently more resilient PMI export - 1.0 - 0.5 0.0 0.5 1.0 1.5 2.0 2.5 10 11 12 13 14 15 Real GDP 2013 avg. H1 2014 avg. Growth has slowed in Q3 1 Real GDP, % qoq Sources: Federal Statistical Office, Deutsche Bank Research - 1.5 - 1.0 - 0.5 0.0 0.5 1.0 1.5 2.0 11 12 13 14 Private consumption Machinery & equipment Construction Net exports Rest Real GDP (% qoq) Investment weighed on Q3 growth 2 Contribution to real GDP growth, qoq, % - points Sources: Federal Statistical Office, Deutsche Bank Research Focus Germany 4 | December 2, 2014 Current Issues orders and actual export growth in Q3 it is at least a sign of the uncertainty companies are facing. Chart 4 below shows the search intensity of the German word “Krise” (crisis) in Germany on Google, which has surprisingly high correlation with investment spending underlining this reasoning. But probably even without this uncertainty, the gradual drop in capacity utilisation towards its long-term average suggests that activity is not strong enough to encourage investment. Concerns over the demand development could also have played a role in the decrease of inventories, which was a substantial 0.5% drag on Q3 GDP. However, this GDP component is only a residual in Germany and not based on actual data making it difficult to interpret. It fits with the greater fall of inter- mediate goods production (-0.9%) relative to total industrial production (-0.3%), as well as companies’ assessment of their inventory levels, though. Net exports slightly positive In contrast to the drop in export sentiment, net exports actually provided still a small positive for Q3 growth adding 0.2%-points as real exports grew by 1.9% (vs. 1.5%), while imports were up 1.7% (vs. 1.1%). The ifo export expectations point to a steel fall in exports over the coming months; like during 2013 this is likely to be only partly reflected in actual exports. Except for Russia there is no clear single drag on exports. Exports to Russia were down around 18% yoy in Q3, which equals about a 0.5%-point drag on total nominal export growth. Other major export destinations have broadly been supportive of German export growth in 2014. Especially exports to the US (+13%) and Asia (+10%) were much higher than last year, but in general there is a lack of underlying momentum in line with weak global trade. -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 -30 -20 -10 0 10 20 30 10 11 12 13 14 15 German merchandise exports (lhs) Global trade (lhs) PMI new export orders (lagged by 3 months, rhs) ifo export expectations (lagged by 3 months, rhs) Sources: Deutsche Bundesbank, ifo, Markit, CPB, Deutsche Bank Research % 3M mov avg yoy (lhs), Standardized values (rhs) Coming weakness likely overstated (as in 2013) 3 0 10 20 30 40 50 60 -40 -30 -20 -10 0 10 20 30 06 07 08 09 10 11 12 13 14 15 Domestic investment goods orders ex. airplanes, % yoy (left) Search interst in word "Krise" ("crisis") acc. to Google Trends (right, 4M lead) Crisis (fears) and investment goods orders 4 Germany, 3M moving averages Sources: Federal Statistical Office, Deutsche Bank Research, Google Focus Germany 5 | December 2, 2014 Current Issues Labour market supports income and consumption growth One positive of Q3 GDP was the vigour shown by real private consumption. It expanded by 0.7% qoq (vs. 0.2% prev.) and, thus, contributed 0.4%-points to overall growth. Disposable income has remained on a steady expansion path rising by 2.4% yoy in nominal terms, which is slightly faster than over the last couple of quarters. Income growth is strongly tilted towards wage income (+3.7% yoy), though. This was due to the ongoing strength in employment growth (+83k qoq after +130k in Q2) and robust wage increases (negotiated wages: +2.8% yoy in Q3). The labour market continued to receive impetus from high net immigration flows. In contrast, property and entrepreneurial income remained weak (0.2%) due to companies’ low overall utilization and rising wage costs that could be passed on to the consumer only in part. The savings rate stood at 9.3% in Q3 – slightly higher than the average over the last 8 quarters. Construction was unexpectedly weak in Q3 (-0.3% qoq), after the weather driven yo-yo movement in H1 (Q1:+4.2%; Q2: -3.9%), given e.g. the rise of the construction PMI and the uptrend of residential permits along with the overall supportive environment (low interest rates, rising disposable income, immigration). Thanks to the strong Q1 construction is still up 3.6% year-to-date, though. -1 -0.5 0 0.5 1 1.5 2 -4 -2 0 2 4 6 8 10 11 12 13 14 Net exports (contr. in pp, right) Exports (left) Imports (left) Robust ex - & imports in Q3 5 Real, sa, % qoq Source: Federal Statistical Office - 4.0 - 3.0 - 2.0 - 1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 13 14 GB US CN RU Other PL Total (% yoy) Sources: Federal Statistical Office, Deutsche Bank Research Russia continues to weigh on exports 6 Growth contribution, % - points, 3M mov. avg. - 15 - 10 - 5 0 5 10 08 09 10 11 12 13 14 Disposable income Employee compensation Property and entrepreneurial income Incomes growth at different speeds 7 % yoy, nominal Source: Federal Statistical Office - 2 0 2 4 6 05 06 07 08 09 10 11 12 13 14 Negotiated hourly wages Employment High wage and robust employment growth 8 % yoy Sources: Federal Statistical Office, Deutsche Bundesbank Focus Germany 6 | December 2, 2014 Current Issues Sentiment and investment goods orders point to weak winter-half Available hard and soft data suggest that German economy is probably stagnating in Q4. We forecast stagnation. While forecasts based on ifo & PMI data suggest moderate growth of 0.2-0.3% qoq, these models generated too optimistic growth prospects in the last two quarters. There is even a risk of a negative quarter in the winter half. On the other hand, the improvement in the ifo index in November could at least suggest that the downtrend is coming to an end. The weak near-term outlook is also corroborated by the further declines of domestic investment goods orders, which have a good correlation with machinery & equipment investment and lead them by about a quarter. Ifo export expectations and PMI new export orders suggest that exports could weaken further, while leading indicators of consumption and employment still look supportive of solid consumption growth. 2014 GDP now 1.4% due to revisions, but 2015 stays at 0.8% Due to the Statistical Office’s moderate upward revisions to H1 2014 our GDP forecast for 2014 has risen to 1.4% from 1.3%. More importantly, our low forecast for 2015 (0.8%) remains untouched. This forecast assumes growth to re-accelerate towards potential in the second half of 2015. Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) 80 90 100 110 120 130 140 12 13 14 Construction 2013 avg. Q4 '13 avg. Q1 '14 avg. Q2 & Q3 '14 avg. 2014 avg. Construction index, 2010=100 Sources: Federal Statistical Office, Deutsche Bank Research Construction output normalising 9 0 5 10 15 20 25 30 20 25 30 35 40 45 50 91 95 99 03 07 11 Residential investment (left) Residential permits (right) Real, 2005=100, sa (l.); bn EUR, sa (r.) Sources: Federal Statistical Office, Deutsche Bundesbank Residential construction remains on an upward trend 10 - 20 - 15 - 10 - 5 0 5 10 15 07 08 09 10 11 12 13 14 Investment in machinery and equipment (nat. acc.) Domestic investment goods orders, 1Q lag Real, % qoq Source: Federal Statistical Office Investment goods orders point to another decline of investment in M&E 11 - 8.0 - 6.0 - 4.0 - 2.0 0.0 2.0 4.0 6.0 - 4.0 - 3.0 - 2.0 - 1.0 0.0 1.0 2.0 3.0 00 02 04 06 08 10 12 14 ifo bus. climate (left) PMI composite output (left) Real GDP (right) Germany; standardized values (left); % yoy (right) Weakening sentiment points to weak Q4 2014 12 Sources: Federal Statistical Office, Markit, ifo, Deutsche Bank Research Focus Germany 7 | December 2, 2014 Current Issues Sluggish German exports – cyclical or structural? — After world trade slumped in 2009 during the global financial crisis, it rebounded relatively strongly in 2010 and 2011. Since 2012, however, the growth in global trade has been anaemic and in contrast to the development during the past decades has been even lower than GDP growth. Structural changes suggest that global trade performance will also be relatively weak in the coming years. — This weaker growth is also reflected in less dynamic German export performance. For Germany the questions are therefore as follows: Is the relative slowdown in German exports due to temporary cyclical factors or lasting structural changes? Can exports fulfil their usual role as a motor of growth in the next few years? — Germany was a clear beneficiary of the increase in international trade links in past decades. The main drivers behind the robust growth in global trade were the integration of emerging markets into the global economy and technological advances, which triggered fundamental changes in work organisation and production methods that enable global value chains to be established and reduced trade costs considerably. — The little momentum generated since 2012 points towards structural changes. The establishment of global value chains has probably reached a plateau for the time being; the Chinese economy’s stronger domestic focus will provide little stimulus for world trade; and the negotiations about new major trade agreements are becoming increasingly difficult. In addition, the G20 nations have adopted new restrictive measures which dampen trade. — German export growth is also likely to be less dynamic in the coming years. Comparing the actual development with the estimate provided by our trade model indicates that the lower elasticity with regard to global growth is structural in nature and that a level shift probably occurred. We forecast average real German export growth at the lower end of a range of 4%-6% between 2014 and 2019, which should be buttressed by a depreciation of the euro. After global trade slumped in 2009 during the global financial crisis, it rebounded relatively strongly in 2010 and 2011. Since 2012 the development of global trade has been anaemic and even fallen short of GDP growth. This was in clear contrast to the development during the past decades and has been one major reason for the generally disappointing performance of the global economy over the last three years. Structural changes suggest that global trade is likely to remain relatively weak in the coming years and post only negligibly faster average growth than global GDP (of more than 3 ½%) until 2019. 1 This is likely to have far-reaching repercussions for Germany's open economy, whose exports have grown roughly in line with global trade in the past decades. Germany was a clear beneficiary of the increase in international trade links. German firms have been outperformers in setting up global value chains. The weaker growth in global trade relative to global GDP growth has already been reflected in less dynamic German export growth since 2012. Germany thus faces the following questions: Is the relative slowdown in German exports due to temporary cyclical factors or lasting structural changes? Can exports fulfil their usual role as a motor of growth in the next few years? 1 Peters, H.; Schneider, S. (2014). Sluggish global trade – cyclical or structural? Global Economic Perspectives. Deutsche Bank Research. 26 November 2014. Focus Germany 8 | December 2, 2014 Current Issues Boom in German exports in recent decades thanks to combination of several favourable factors Over recent decades German exports have grown at roughly the same pace as global trade. This enabled Germany to impressively defend its position as one of the world’s biggest exporters – despite the rise of the emerging markets and in contrast to the other major advanced economies. Germany thus benefited much more than other countries from the increase in globalisation, which ensured that in the past decades global trade grew much faster than global GDP (1970-2013: 5.6% vs 3.6%), especially in the 1990s when global trade grew more than twice as fast as the global economy. Global trade openness – defined as the ratio of trade to GDP – increased from about 15% at the beginning of the 1990s to currently 25%. The gains from intensified globalisation significantly boosted global welfare and supported the catching-up process especially in the emerging markets. The main drivers behind the outperformance of global trade were: — The integration of emerging markets into the global economy following political reforms or even revolutions which, facilitated by far-reaching trade agreements, fostered a massive catching-up. — Technological advances, which triggered fundamental changes in work organisation and production methods and reduced trade costs considerably. Global trade and German exports outperformed global growth in previous decades 5 Global GDP growth % yoy Global trade growth % yoy German trade growth % yoy 70 - 13 3.6 5.6 5.3 70 - 79 4.0 6.4 5.4 80 - 89 3.2 3.7 4.8 90 - 99 3.1 6.6 5.6 00 - 09 3.8 5.1 4.6 10 - 13 4.0 6.8 6.9 Sources: IMF, Deutsche Bank Research - 30 - 20 - 10 0 10 20 30 40 50 60 70 75 80 85 90 95 00 05 10 Global trade prices Real global trade Real GDP Nominal global trade Weakness of real global trade and trade prices in recent years 1 % yoy Sources: IMF - IFS, Deutsche Bank Research - 2.0 - 1.5 - 1.0 - 0.5 0.0 0.5 1.0 1.5 2.0 - 30 - 20 - 10 0 10 20 30 10 11 12 13 14 15 German merchandise exports (left) Global trade (left) PMI new export orders (lagged by 3 months, right) ifo export expectations (lagged by 3 months, right) % 3M mov. avg. yoy (left), Standardised values (right) Sources: Deutsche Bundesbank, ifo, Markit, CPB, Deutsche Bank Research Weak development and outlook for German exports 2 0 2 4 6 8 10 12 14 16 60 64 68 72 76 80 84 88 92 96 00 04 08 12 CN US DE JP NL IN China's remarkable rise to the world's largest goods trading nation 3 % of global goods trade Source: UNCTADstat 0 2 4 6 8 10 12 14 16 18 20 80 84 88 92 96 00 04 08 12 CN US DE UK FR IN US continues to dominate global services trade 4 % of global services trade Source: UNCTADstat Focus Germany 9 | December 2, 2014 Current Issues The opening-up of emerging market economies The trade and financial liberalisation of the large emerging markets caused serious disruptions to historically established international trade relations and intensified global competition markedly. The global trade share of emerging markets increased strongly from 28% in 1978 to almost 50% in 2013. The main beneficiaries of the marked increase in demand for capital goods were German manufacturing companies that are often world market leaders. In particular, the integration of the two most populous countries, China and India with their population of 2.6 billion or almost 40% of the world’s total, into the world economy had a massive impact providing strong cost pressure for companies in high-wage advanced economies. In addition, there were massive political and economic upheavals in Eastern Europe. Following the collapse of Comecon the Eastern European countries implemented far-reaching structural changes and the modernisation and expansion of their production facilities in order to become integrated in the global economy. In China the process started at the end of the 1970s with Deng’s “reform and opening up” focusing on the industrial sector. Since 2009 China has been the world’s largest goods exporter. By contrast, India began its liberalization about 10 years later and focused on the services sector. However, until now India has remained a relatively closed economy compared to China. While both countries started by specialising in mass production of simple products, such as textiles, clothing and footwear, utilising their comparative advantage in labour costs, they have constantly moved up the value chain into the fast growing sectors related to information and communications technology (ICT), for example electronic goods in China and ICT services in India. Thus, they have relocated production factors more and more to sectors with higher productivity. 2 Intensified competition from low-wage countries with their abundant supply of labour put downward pressure on global wages, weighing on inflation and thus also on long-term real interest rates. 3 German companies had to increase their efficiency and innovate in order to safeguard their market shares and their technological leadership. Thus, labour demand shifted away from lower-skilled workers in Germany due to higher imports from emerging markets resulting in outsourcing and offshoring. 2 Bensidoun, I. et al. (2009). The integration of China and India into the world economy: a comparison. The European Journal of Comparative Economics, 6(1), pp. 131-155. 3 Folkerts-Landau, D. et al. (2014). The Revived Bretton Woods System’s First Decade. Deutsche Bank Research. Special Report. 16 August 2014. - 2 0 2 4 6 8 10 - 5 0 5 10 15 Real GDP per capita growth stronger in countries with higher export growth 6 x - axis: real export growth; y - axis: real GDP per capita growth (median 90 - 13; % yoy) Sources: IMF, Deutsche Bank Research 0 20 40 60 80 100 120 140 160 97 99 01 03 05 07 09 11 Total OECD Europe EMU East. Europe E. Asia ex JP Germany Hourly compensation costs in manufacturing (Index, US=100) Hourly compensation the lowest in Eastern Europe and East Asia ex JP 7 Source: BLS Focus Germany 10 | December 2, 2014 Current Issues Global value chains deepened the international division of labour Technological advances in ICT since the 1990s further increased the pressure on lower-skilled workers doing routine tasks in part via automation and partly via the new possibility for companies to divide up their production into different stages across a number of countries. 4 Firms could significantly boost their competitiveness by dividing up their value chains and shifting parts of the value chain to other countries, either by establishing subsidiaries, acquiring stakes in foreign companies (offshoring) or by purchasing from external suppliers (outsourcing). 5 Multinational firms – but above all global consumers – profited from lower prices as a consequence of more intense competition between the producers of intermediates, from a broader range of intermediates and from more efficient production. Since production for example is contracted out to specialised manufacturers, multinational groups can gain access to international expertise that they do not have in-house. In addition, manufacturing locally eases access to foreign markets considerably. The conditions for the smooth functioning of global value chains are far reaching trade agreements, legal certainty, the presence of specialist service providers, trade financing and ICT. The changes from purely national to global value creation have boosted the share of imported intermediates in a country’s exports (bazaar economy 6 ). Germany benefited particularly handsomely from the opening-up of Eastern European countries on account of its geographical proximity. The German economy extensively exploited the new opportunities to outsource parts of the value chain – thanks to the much lower wage costs – and not only to eastern Europe, but especially also to Asia. This also changed the composition of Germany’s trade in goods towards the trade in intermediate goods. The share of 4 Michaels, G. et al. (2014). Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years. The Review of Economics and Statistics, 96(1), pp. 60-77. Baldwin, R. (2009). Integration of the North American economy and new-paradigm globalisation. CEPR Discussion Papers 7523. 5 Grossman, G., Rossi-Hansberg, E. (2008). Trading Tasks: A Simple Theory of Offshoring. American Economic Review, 98 (5), pp. 1978-1997; Cadot, O. et al. (2011). Trade Diversification: Drivers and Impacts, in Jansen M., Peters, R., Salazar-Xirinachs, J.M., Trade and Employment: from Myths to facts. ILO. 6 Sinn, H.-W. (2005). Die Basar-Ökonomie: Deutschland: Exportweltmeister oder Schlusslicht? Econ, 2nd edition. Aichele, R., Felbermayr, G. and Heiland, I. (2013). Neues aus der Basar- ökonomie. ifo Schnelldienst 6/2013. Strongest growth of exports in Asian countries 8 Export growth (real terms, median 1990-2013, % yoy) Sources: IMF, Deutsche Bank Research 5 15 25 35 Global AE EM EU DE FR IT ES Extra EU US CN JP 1995 2008 Sources: OECD/WTO TIVA , Deutsche Bank Research % of total gross exports Foreign value added content of exports has risen markedly since the mid - 1990s 9 Focus Germany 11 | December 2, 2014 Current Issues imported intermediates in German exports increased from 19% in 1995 to 28% in 2008. Trade costs fell markedly due to trade agreements and technological advancements and automation This integration was made possible by extensive trade liberalisation measures – reduction in tariffs, dismantling of non-tariff trade barriers – declining transport cost thanks to technological advances and increased automation in the logistics sector. Trade costs fell significantly across all regions in recent decades, with high-income countries enjoying the strongest declines. 7 However, in some emerging markets the costs of trade are still burdened significantly by legal uncertainty, corruption and partly non-functioning administrations. Only after prolonged efforts have been made on multilateral agreements to further liberalise global trade, for example the Doha round negotiations have been dragging on since 2001. While in the past it was relatively easy to agree multilaterally on the reduction of tariffs, the subsequent reduction in non-tariff barriers and reaching agreement on international standards have proved a great deal more difficult to achieve. Further liberalisation has thus increasingly taken place via regional trade agreements (RTAs).The number of RTAs worldwide has increased almost tenfold since the beginning of the 1990s. However, RTAs are only second best, since they are typically disadvantageous for non-member countries due to the trade diversion effect. For Germany it was primarily the European integration process that brought about far-reaching changes that culminated in the founding of EMU. 7 Arvis, J.-F. et al. (2013). Trade Costs in the Developing World: 1995-2010. World Bank. Policy Research Working Paper 6309. 0 5 10 15 20 25 30 35 40 Total Agriculture Mining Food products Textiles Wood, paper Chemicals, minerals Basic metals Machinery Electrical equipment Transport equipment Other manufacturing Electricity, gas, water supply Construction Wholesale, retail Transport, telecoms Financial intermediation Business services Other services % of total gross exports Sources: OECD/WTO TIVA, Deutsche Bank Research Foreign value added content of exports the highest in manufacturing 11 0 1 2 3 4 5 6 7 96 98 00 02 04 06 08 10 12 EMU Other EU Other European countries Africa America Oceania and Polar regions Asia Source: Deutsche Bundesbank No of people (million) Employment in foreign subsidiaries of German companies 10 80 85 90 95 100 105 96 98 00 02 04 06 08 High income Low income Lower middle income Upper middle income 1996=100, average trade costs for manufactured goods Source: Arvis, J. - F. et al. (2013) Trade costs fell especially for high income countries 12 0 5 10 15 20 25 30 0 50 100 150 200 250 300 57 61 65 69 73 77 81 85 89 93 97 01 05 09 13 Change yoy (right) Cumulative total (left) Sources: WTO - Regional Trade Agreements Information System, Deutsche Bank Research Failure to reach multilateral agreements pushed up number of Regional Trade Agreements since the mid - 1990s 13 Cumulative total of RTAs in force (left), new RTAs per year (right) Focus Germany 12 | December 2, 2014 Current Issues German export growth will probably continue to disappoint like global trade German export growth slowed after the rebound in 2010/11 and has failed to gain lasting momentum this year. Exports should grow by about 4% in 2014, a slightly higher rate than global trade – so Germany can even slightly enhance its international performance. However, especially weak global investment spending – the result of global overcapacities, weak commodity prices, elevated geopolitical risks and heightened uncertainty regarding the global outlook (EMU, China) – dampens global trade to a disproportionately large extent due to the higher trade intensity of investment spending compared to other demand components of GDP. German exports are being hit particularly hard by the disappointing performance of the eurozone, Germany’s most important export market by far. This is likely to remain the case over the next few years as EMU growth will be dampened by the considerable deleveraging still required in the private and public sector. By contrast, emerging Asia is still providing support. Thanks to the expected US- driven recovery of the world economy (2015F: 3.6%, 2016F: 3.7%) the cyclical weakness of investments and also exports is expected to vanish slowly. However, the rebalancing of the Chinese economy away from being the “workbench” of the world to a services-oriented, consumption-driven economy is likely to weigh on demand for capital goods over the medium term, which will probably have a negative impact, especially on the German plant and machinery sector. The pace of trade liberalisation has slowed Since tariffs were already lowered markedly in previous decades, German exports could only be boosted significantly by agreements on a further reduction of non-tariff barriers. But to reach agreement in for example areas of government procurement, foreign investments, services, intellectual property, labour and environmental standards as well as agriculture is quite difficult. At the end of 2013 the declaration of intent to implement the Trade Facilitation Agreement (TFA) in Bali – to sign by mid-2014 and to come into effect in mid- 2015 – provided a glimmer of hope. In mid-2014, however, agreement failed to be reached due to opposition from India, Cuba, Venezuela and Bolivia. Recently, however, all the countries agreed to the TFA after all. Ratification and actual implementation will probably take several years, however, and the positive effects are likely to be limited since most of the Bali agreement has already been implemented unilaterally. 8 Looking at the RTAs currently being negotiated, if the US – the third biggest destination for German exports – and the EU reach agreement on Transatlantic Trade and Investment Partnership (TTIP) it could give a major boost to German exports. However, negotiations have stalled recently and reaching an agreement will probably take years at best. If agreement should be reached at the negotiations currently being conducted on other RTAs (Trans Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP)) in which the European nations are not involved, this would tend to have a negative impact on German external trade, because of the likely trade diversion effect. Also, there is a risk that existing German value chains with Asian countries could be less attractive and could be broken apart. 8 Evenett, S.; Jara, A. (2013). Building on Bali: A Work Programme for the WTO. A VoxEU.org eBook. CEPR. 0 10 20 30 40 50 60 70 FTAAP TTIP TPP EU - JPN RCEP CJK AEC Nominal exports Nominal GDP As % of global exports and GDP Economic significance of future RTAs 14 Sources: WTO, UNCTAD, IMF, Deutsche Bank Research Focus Germany 13 | December 2, 2014 Current Issues In addition, new restrictive trade measures by G20 nations continue to increase and they dampen global trade. Weak German exports since 2012 probably a consequence of structurally lower trade elasticity of global economic growth To check more formally for a structural break in the relationship between global GDP growth and German exports since 2012, we compare the actual development in German exports since 2012 with our estimated development in German exports provided by our trade model. We formulate an Error Correction Model of German exports, Terms of Trade and global GDP over the observation period extending from 1977 to 2008. 9 There is a historical long-term relationship between these three variables, as the cointegration of the variables shows. The short-term equation of the model describes the actual development in German exports relatively well until the year 2011. For 2012 and 2013 the model solution of the error correction model delivered German export growth figures that were much higher than those actually observed. However, the actual development is even outside the 10%- confidence interval of the model estimations. The model has thus been unable to predict the actual development since 2012, which is probably an indication of a structural break. This tallies with the cyclical and structural factors discussed above, which point towards a lower elasticity of global trade to global GDP growth and/or a level shift. We calculate different scenarios assuming different elasticities and level shifts. The scenario that best fits the actual development in German exports in 2012 and 2013 has a lower elasticity and probably a permanent downward level shift. This would mean that there was no convergence to the long-term equilibrium. The scenario thus suggests that the impressive export performance during the last three decades was indeed the result of the confluence of favourable factors, of which at least some seem to have run their course. Therefore, the trade dynamics of coming years will probably be weaker than suggested by the 9 See table 19 with the estimation results of the Error Correction Model. 0 200 400 600 800 1000 1200 1400 1600 1800 70 74 78 82 86 90 94 98 02 06 10 14 18 Actual German exports Estimated German exports Short - term adjustment to long - term path Long-term correlation between German trade, Terms of Trade and global GDP 15 Index 1970 = 100 Sources: IMF, Deutsche Bank Research - 15.0 - 10.0 - 5.0 0.0 5.0 10.0 15.0 20.0 70 74 78 82 86 90 94 98 02 06 10 Estimated German exports Confidence interval (10%) Actual German exports Sources: IMF, Deutsche Bank Research % yoy German trade development markedly below model prediction in 2012/13 16 0 2 4 6 8 10 12 14 16 10 11 12 13 14 15 16 17 18 19 Actual German export growth Elasticity of 1.3; convergence Elasticity of 1.3; no convergence Elasticity of 1.0; convergence Elasticity of 0.5; convergence Elasticity of 0.5; no convergence % yoy Sources: IMF, Deutsche Bank Research Deviation of actual from ECM trade model prediction points to lower elasticity and no convergence 17 0 1 2 3 4 5 6 7 8 9 70 - 11 12 - 19 12 - 19 12 - 19 Elasticity 1.3; convergence Elasticity 0.5; convergence Elasticity 0.5; no conv. Avg. GDP growth Avg. trade growth Avg. % yoy Sources: IMF, Deutsche Bank Research Export growth probably weaker than in the past given global GDP growth 18 Focus Germany 14 | December 2, 2014 Current Issues historical correlation. German exports are, however, likely to be buttressed in the coming years by the depreciation of the euro, which is likely to result in a deterioration of the terms of trade. We forecast average real German export growth at the lower end of a range of 4%-6% between 2014 and 2019. Heiko Peters (+49 69 910-21548, heiko.peters@db.com) Stefan Schneider (+49 69 910-31790, stefan-b.schneider@db.com) Error correction - model (Engle Granger two step estimation) 19 Long - term relationship Endogenous variable: ln (real German exports) Observation period: 1977 - 2008 Coef. Std. Err. t P>t [95% Conf. Interval] ln (real global GDP) 1.86 0.04 41.37 0.00 1.76 1.95 l n (terms of trade) - 0.81 0.16 - 5.10 0.00 - 1.14 - 0.49 Constant - 0.48 0.57 - 0.85 0.41 - 1.64 0.68 Null hypothesis that the residual of the long - term relationship estimation contains a unit root can be rejected (Dickey - Fuller test: p - value of 0.04). Short - t erm relationship Endogenous variable: German trade growth, % yoy Global GDP growth 1.30 0.44 2.96 0.01 0.40 2.20 Change of Terms of trade - 0.60 0.15 - 4.08 0.00 - 0.90 - 0.30 Error correction term - 0.32 0.12 - 2.75 0.01 - 0.55 - 0.08 Constant 0.01 0.02 0 .91 0.37 - 0.02 0.05 Adj. R - squared 0.49 Sources: IMF, Deutsche Bank Research Focus Germany 15 | December 2, 2014 Current Issues Chart of the month Declining importance of atypical types of employment Given the good development of the German labour market, employment rose beyond the 43 million mark in November 2014 for the very first time. What is more, the importance of atypical types of employment declined in the last few years, which is also a testament to the quality of the jobs created. Since 2011, the marked increase in employment has been solely attributable to an expansion of regular employment, i.e. permanent full-time jobs with social insurance obligations. Atypical employment declined in 2013 for the third year in a row. This is w due – thanks to the high demand for labour – to a decrease in jobs with fixed-term contracts. Marginal part-time employment (less than 20 hours per week) has continued to edge up since 2011, a trend likely attributable to a further increase in the female labour participation rate. Women account for some 86% of total marginal part-time employment, as many of them, for example, stay at home to look after their children (or there is a dearth of child care facilities). The share of workers in regular employment rose to 67.5% in 2013 – the highest reading since labour market reforms were implemented in the mid- 2000s. Since its low in 2006 the share increased by 2 pp. Even though economic activity has weakened in the course of 2014, the jobs trend probably continued. One indication is that in a year-on-year comparison the number of employees required to pay social security contributions increased faster than total employment activity. In addition, demand for labour is still relatively high. At 515,000, the number of job vacancies – 95% employment with social insurance obligations and roughly 80% permanent jobs – is up 12% on the year. Heiko Peters (+49 69 910-21548, heiko.peters@db.com) - 2.5 - 2.0 - 1.5 - 1.0 - 0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 04 05 06 07 08 09 10 11 12 13 Regular employment Atypical employment Total % yoy, pp Sources: Federal Statistical Office, Deutsche Bank Research Since 2011 employment boom solely due to standard employment relationships DX - 3.0 - 2.5 - 2.0 - 1.5 - 1.0 - 0.5 0.0 0.5 Fixed - term contract employees Marginal part - time employment Persons in marginal employment Temporary workers Total (% yoy) % yoy, pp Growth contributions do not sum up due to the fact that one employee coud be in several atypical employment types at the same time, eg. marginal part - time temporary workers. Sources: Federal Statistical Office, Deutsche Bank Research Almost all types of atypical employment have declined since 2011 DX Focus Germany 16 | December 2, 2014 Current Issues DB German Macro Surprise Index The D B German Macro Surprise Index compares published economic data with market forecasts and thus provides clues as to the direction of future forecast revisions. 10 Heiko Peters (+49 69 910-21548, heiko.peters@db.com) 10 See for details Focus Germany. August 4, 2014. -0.7 -0.5 -0.3 -0.1 0.1 0.3 0.5 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 DB German Macro Surprise Index +/ - 1 standard deviation 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 DB German Macro Surprise Index -1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0 05 06 07 08 09 10 11 12 13 14 Cons. Ec. forecasts, pp mom Forecast of Cons. Ec. Forecast of Cons. Ec. (10% CI) Monthly revisions of Consensus Economic Forecasts (pp); Average of previous 20 z-scores CI: 10% Confidence Intervall Sources: Consensus Economics Inc., Deutsche Bank Research DB German Macro Surprise Index and GDP forecasts Last 20 published economic data for Germany DX Bloomberg Tickers Indicator Reporting month Publication date Current value Bloomberg consensus Surprise Standardised surprise Quantile rank GRIFPBUS Index IFO Business Climate 10 2014 27.10.14 103.2 104.5 - 1.3 - 1.1 0.1 GRIMP95Y Index Import Price Index (% yoy) 9 2014 28 .10.14 - 1.6 - 1.9 0.3 0.6 0.8 GRUECHNG Index Unemployment Change (000's mom) 10 2014 30.10.14 - 23.0 4.0 27.0 0.8 0.8 GRFRIAMM Index Retail Sales (% mom) 9 2014 31.10.14 - 2.8 - 0.9 - 1.9 - 1.2 0.1 MPMIDEMA Index Markit Manufacturing PMI 10 2014 03.11.14 51.4 51.8 - 0.4 - 0.4 0.2 MPMIDESA Index Markit Services PMI 10 2014 05.11.14 54.4 54.8 - 0.4 - 0.4 0.3 GRIORTMM Index Factory Orders (% mom) 9 2014 06.11.14 0.8 2.3 - 1.5 - 0.7 0.2 GRCAEU Index Current Account Balance (EUR bn) 9 2014 07.11.14 22.3 18.0 4.3 1.0 0 .8 GRIPIMOM Index Industrial production (% mom) 9 2014 07.11.14 1.4 2.0 - 0.6 - 0.5 0.3 GRCP20YY Index CPI (% yoy) 10 2014 13.11.14 0.8 0.8 0.0 0.3 0.4 GRZECURR Index ZEW Survey Current Situation 11 2014 18.11.14 3.3 1.7 1.6 0.2 0.6 GRZEWI Index ZEW Surv ey Expectations 11 2014 18.11.14 11.5 0.5 11.0 1.3 0.9 MPMIDESA Index Markit Services PMI 11 2014 20.11.14 52.1 51.7 0.4 0.5 0.7 MPMIDEMA Index Markit Manufacturing PMI 11 2014 20.11.14 50.0 50.0 0.0 0.0 0.5 GRIFPBUS Index IFO Business Climate 11 2014 2 4.11.14 104.7 103.0 1.7 1.1 0.9 GRGDPPGQ Index GDP (% qoq) 9 2014 25.11.14 0.1 0.1 0.0 - 0.1 0.3 GRIMP95Y Index Import Price Index (% yoy) 10 2014 26.11.14 - 1.2 - 1.5 0.3 0.6 0.8 GRUECHNG Index Unemployment Change (000's mom) 11 2014 27.11.14 - 14.0 - 0.5 1 3.5 0.3 0.6 GRCP20YY Index CPI (% yoy) 11 2014 27.11.14 0.6 0.6 0.0 0.3 0.4 GRFRIAMM Index Retail Sales (% mom) 10 2014 28.11.14 1.9 1.5 0.4 0.6 0.7 Sources: Bloomberg Finance LP, Deutsche Bank Research Focus Germany 17 | December 2, 2014 Current Issues Chartbook – Total economy — In Q3 the German economy barely avoided falling into a technical recession. GDP grew by 0.1% qoq after a 0.1% decline in the previous quarter. Underlying growth has slowed after it had averaged 0.3% qoq over the last 6 quarters. The strongest negative impetus came from investment in machinery & equipment ( - 2.3% qoq vs +0.4% qoq in Q2). Compan ies reacted to the only moderate capacity utilization, concerns regarding the global economy and geopolitical risks. Net exports contributed positively to GDP, but export growth remains moderate – just like global trade. Construction ( - 0.3%) failed to rebo und after the weather induced volatility in H1. The most important growth pillar was private consumption (+0.7% vs +0.1%), which benefitted from ongoing solid increase in disposable income. This is driven by the robust labour market. In contrast, entrepren eurial and property income continued to languish given the low interest rate environment and companies’ moderate capacity utilization levels. — Sentiment indicators were lower in Oct/Nov compared to their Q3 averages, which supports our expectation that Q4 i s set to remain weak. We forecast that the German economy will stagnate in Q4 and Q1 on average. Sentiment is being weighed down by ongoing geopolitical risks and questions marks over the global economy. Disappointing momentum in France (9% of German expor ts) and Italy (5%) as well as the slump of German exports to Russia ( - 18% yoy; 3% of German exports) dampen export growth. In this uncertain environment companies are likely to be cautious and put their investment plans on hold. On a positive note, the ifo index’s increase in November back to its low September value could at least point to a stabilization of growth prospects – a necessary condition for our growth forecasts. — On account of these factors and the lowered global growth forecasts for 2015 and 201 6, we have scaled back our growth forecasts lately. We now expect the German economy to expand by 1.4% this year and by 0.8% in 2015, which is partly due to the low starting base provided by the weak winter half (2016: 1.2%). Sources: Feder al Statistical Office, Markit, ifo, Deutsche Bank Research - 2 0 2 4 6 - 1 0 1 2 3 10 11 12 13 14 15 % qoq (left) % yoy (right) Real GDP growth - 1.5 - 1 - 0.5 0 0.5 1 1.5 2 12 13 14 15 16 Private consumption Government consumption Machinery & equipment Construction Net - trade Inventories GDP (% yoy) Contribution to real GDP growth (% - points) 70 80 90 100 110 120 130 08 09 10 11 12 13 14 Climate Situation Expectations ifo index - total economy (2005=100) 30 40 50 60 70 08 09 10 11 12 13 14 Composite Services Manufacturing Purchasing manager index Focus Germany 18 | December 2, 2014 Current Issues Chartbook – Foreign trade — As expected foreign trade recovered in September. Exports rose 6.1% mom and, thus, mostly made up for the 6.7% decline in August, which was heavily impacted by spe cial factors. The yoy - comparison (+5.7%) paints a more positive picture, but it is also strongly affected by the monthly volatility observed in Q3. In general, German export growth remains moderate – in line with global trade. Imports, too, recovered (+7.1 % mom vs +4.6%). The trade balance surplus rose slightly to EUR 19.4 bn, which is well above the H1 average of around EUR 18 bn. — Demand from the US and Asia remained high and exports to these destinations are up around 10% yoy, although this increase is al so influenced by the latest volatility. Exports to EMU dampen (+3.6%). — It was foremost automobile exports (July +10.1%; Aug +2.6%; Sep +3.6%) that produced the volatility (negative one - offs: holiday effect, re - tooling of production lines for new models ). The other German export engine, mechanical engineering, was stuttering. Foreign demand in the metal industry remained weak. — Leading export indicators were mixed in November, but are on a low level and are all in all pointing to a continued weak export deve lopment. The unresolved Ukraine - Russia crisis and the clouded growth outlook for some major German trading partners – esp. China, France, Italy – will probably continue to be a drag. Thanks to the moderate recovery of the world economy next year – driven b y solid US growth – and the weaker EUR, we expect a gradual recovery of exports with risks to the downside. Imports will probably grow relatively strong thanks to robust domestic demand. Sources: Federal Statistical Office, Markit, ifo, Deu tsche Bank Research, CPB 0 5 10 15 20 25 30 35 40 45 50 - 30 - 20 - 10 0 10 20 30 40 08 09 10 11 12 13 14 Trade balance (right) Exports (left) Imports (left) Merchandise trade % yoy, 3M mov. avg. (left); EUR, bn (right) - 40 - 30 - 20 - 10 0 10 20 30 40 08 09 10 11 12 13 14 Total Asia USA EMU German exports by region % yoy, 3M mov. avg. - 20 - 10 0 10 20 30 40 50 10 11 12 13 14 Chemicals Elec. engineering Mech. engineering Metals Automobile Exports by sector % yoy, 3M mov. avg. - 2 - 1 0 1 2 - 30 - 20 - 10 0 10 20 30 10 11 12 13 14 15 German merchandise exports (left) Global trade (left) Manufacturing PMI - new export orders (right) ifo export expectations (right) Exports and early indicators % yoy, 3M mov. avg. (left); Standardized values (right, 4M lead) Focus Germany 19 | December 2, 2014 Current Issues Chartbook – Industry — September industrial production – just like exports – showed the expected partial counter movement to the strong declines observed in August (+1.4% mom vs - 3.1%). Compared to last year production was up only 0.5% (3M mov. avg.). — The ifo index for the manufacturing industry rose in November after six consecutive declines. By contrast the PMI (which fell) more than reversed its gain from October. On current levels both suggest that industrial growth should remain weak in Q4, though. — Following weak performance in winter half - year 2014/15 industrial production in Germany is likely to return to a moderate uptrend in the course of 2015, resulting in expansion of roughly 1.5% in real terms in 2014 and about ¾% i n 2015. We expect both the automotive industry and mechanical engineering to increase their output by roughly 1% in 2015. While mechanical engineering should thus slightly improve its performance over 2014 (stagnation), the auto industry should see its gro wth cool noticeably (2014: +4%). Electrical engineering is poised for stagnation in 2015 – following a 1.5% increase in 2014. Production in the metals industry is expected to decline slightly in 2015 after a moderate increase in the current year. Chemicals production is likely to add 2.5% in 2015; however, this would "only" neutralise the setbacks in 2014. Production in the food industry could increase by 0.5% in 2015. Sources: Federal Statistical Office, ifo 60 70 80 90 100 110 120 130 -40 -30 -20 -10 0 10 20 30 40 08 09 10 11 12 13 14 15 Industrial production (left) New orders (left) ifo manufacturing expectations (right, 4M lead) Industrial production, new orders & ifo expectations % yoy, 3M mov. avg. (left); index (right) -50 -40 -30 -20 -10 0 10 20 30 40 08 09 10 11 12 13 14 Total Domestic Foreign (EMU) Foreign (Non - EMU) New manufacturing orders by region % yoy, 3M mov. avg. 60 70 80 90 100 110 120 130 140 08 09 10 11 12 13 14 Automobile industry Chemical industry Electrical engineering Mechanical engineering Metal industry Production of largest industrial sectors (2010=100, sa) 50 60 70 80 90 100 110 120 130 08 09 10 11 12 13 14 Automobile industry Chemical industry Electrical equipment Mechanical engineering Metal goods ifo business expectations of the largest industrial sectors (2005=100) Focus Germany 20 | December 2, 2014 Current Issues Chartbook – Domestic economy — The German labour market remained in good shape in November. Unemployment fell strongly for the second month ( - 14k mom). Employment growth continued to be mainly driven by the integration of immigrants into the German labour market which highlights m ismatch problems of the domestic labour force. The outperformance of employment relative to unemployment continues due to almost 350,000 additional persons that entered the German labour market this year mainly thanks to high net migration. Early indicator s suggest a modestly positive development over the next few months. The unemployment rate should fall to 6.7% in 2014 (2013: 6.9%). In 2015 we expect the unemployment rate to increase slightly to 6.8% due to the weaker economic situation and the negative i mpact from the minimum wage. — As expected real retail sales recovered in October (+1.9% mom) after collapsing in September ( - 2.8%). Compared to last year sales are up around 1% (3M mov. avg.), not bad given retail sales’ usual under - performance relative to private consumption. The rebound took place due to the typical purchases of autumn fashion, which had suffered from warm weather in September. In particular, the sales volumes for textiles, clothing, footwear and leather goods recovered in October. — After weakness in 2013 investment in M&E and construction spending should moderately contribute to growth again this year. Still, domestic investment goods orders and capacity utilization currently point to a continued weakness in the remainder of 2014. Given th e weak starting base investment in M&E should rise by only about 1% in 2015 after a good 3% in 2014 (2013: - 2.7%). — The construction sector benefits from high net immigration and rising disposable income propelling housing demand. Construction spending cou ld grow by about 3% in real terms in 2014 and 2 ½% in 2015 (2013: - 0.1%). Sources: Federal Statistical Office, Deutsche Bank Research, Gfk, EU Commission, ifo 85 90 95 100 105 110 115 -400 -200 0 200 400 600 800 08 09 10 11 12 13 14 15 Unemployed (left, inverted) Employees (left) ifo employment barometer (right, 6M lead) Unemployment barometer, employment and unemployment '000 yoy (left); index (right) -4 -3 -2 -1 0 1 2 3 4 -4 -3 -2 -1 0 1 2 3 4 08 09 10 11 12 13 14 Gfk consumer climate (left) EC consumer climate (left) Retail sales (right) Retail sales and consumer confidence Normalized data (left), % yoy, 3M mov. avg. (right) 96 97 98 99 100 101 102 103 -30 -20 -10 0 10 20 08 09 10 11 12 13 14 Investment in M&E DB investment climate Investment in machinery & equipment and DB investment climate % yoy (left); index normalized to 100 (right) 0 50 100 150 200 250 91 95 99 03 07 11 Construction activity New orders Construction activity and new orders 2010=100, 3M mov. avg. Focus Germany 21 | December 2, 2014 Current Issues Chartbook – Financial markets — According to the preliminary data for Novem ber inflation stood at 0.6% yoy after hovering at 0.8% in the previous four months. The fall in the oil price continued to weigh on energy prices ( - 2.5% yoy vs prev. - 2.3% yoy). Food prices stagnated (+0.0% yoy vs 0.7% yoy). Core inflation fell, too (proba bly 1.2% after 1.3%), but this could have been due to the volatile prices for package holidays. While the downtrend in oil prices is set to dampen energy inflation, the food producers’ price expectations suggest that food inflation could pick up (temporari ly) in the coming months. Also, the expected weakness of the Euro and the introduction of the minimum wage will push up prices. Our inflation forecast is 1.0% for 2014 and 1.2% for 2015. — Fearing a negative feedback loop between declining current inflation, a disanchoring of inflation expectations and still weak banking system restricting the supply of credit, the ECB has become more expansionary in recent. It started the covered bond purchase programme (CBPP3) recently and will begin purchasing non - financia l private sector assets under an ABS purchase programme (ABSPP) later in Q4. Objectives are credit easing and weakening the EUR by expanding the balance sheet to early 2012 levels. However, we expect these measures to reach about half of the targeted of EU R 1 trillion. Therefore, we expect the ECB to initiate “broad - based asset purchases”, which will include government bonds, within the next six months. — Given diverging interest rate and growth expectations for EMU and the US, the yield spread between 10Y U S treasuries and German Bunds has widened further to over 150 pp as of late. Sources: Federal Statistical Office, ECB, EU Commission, Global Insight, Reuters, Deutsche Bank Research -20 -10 0 10 20 -4 -3 -2 -1 0 1 2 3 4 08 09 10 11 12 13 14 Total (left) Core inflation (left) Food (right) Energy (right) Consumer prices (% yoy) 0 1 2 3 4 5 6 08 09 10 11 12 13 14 ECB refi rate 3M interest rate EMU: Refi rate & 3M interest rate (%) 0 1 2 3 4 5 6 7 8 08 09 10 11 12 13 14 US DE FR IT ES 10Y government bond yields (%) 1.2 1.3 1.4 1.5 1.6 90 100 110 120 130 08 09 10 11 12 13 14 Nom. eff. EUR - exchange rate (lhs) Real eff. EUR - exchange rate (lhs) USD per EUR (rhs) Exchange rate development for the EUR 1999Q1=100 (left), USD per EUR (right) Focus Germany 22 | December 2, 2014 Current Issues Chartbook – Lending — During 2014, shrinking proce sses for credit to corporates have become somewhat less pronounced in the euro area. With - 2.4% yoy, October records the smallest reduction since the start of the year (for comparison: January - 3.4%, mid - 2013: - 5.9%). While still shrinking, the trend sugge sts bottoming - out coming closer. Household deleveraging in the euro area continues in October ( - 0.6% yoy). — Credit conditions for German corporates continue to be very favourable. Interest rates for corporate credit remained at 2.8% (September). Only 18.3% of companies from industry and trade (October 17.7%) and some 21.2% of construction companies (October: 21%) report restrictive access to credit in November . Nevertheless, corporate borrowing has remained restrained throughout the year. Only most recently Q3 records slight growth and October saw an increase of +0.6% yoy. Despite easy access to credit and the low rate environment, German corporates have shown reluctant demand for credit and investment. — Alternative financing options of enterprises such as iss uing corporate bonds have continued to dampen corporate loan demand. — Lending to households in Germany continues to rise modestly (October: +1.4% yoy). Growth in mortgage credit (+2.3% yoy) continues to drive total increases. For the first time in almost two years, consumer credit remains almost stable, only recording a minimal drop in October ( - 0.1%). — Mortgage credit growth in Germany has remained around 2% this year, in line with developments in 2013. Given the very low interest rates – September reached a new low at 2.3% – credit growth remains rather moderate. This partly reflects portfolio shifts by households and local supply shortages as well as rather cautious attitudes with regards to lending. Rising real incomes reduce the need to finance consumpt ion via credit for many households translating into restrained credit demand despite the low interest rates. Sources: ECB, ifo, Deutsche Bank Research -10 -5 0 5 10 15 20 06 07 08 09 10 11 12 13 14 EMU - non - fin. corporations EMU - households DE - non - fin. corporations DE - households Lending to the private sector (% yoy) -6 -4 -2 0 2 4 6 05 06 07 08 09 10 11 12 13 14 Credit for consumption Households - lending for house purchase Loans to households (% yoy) 0 1 2 3 4 5 6 7 06 07 08 09 10 11 12 13 14 ECB refi rate Mortgage loans (households, new loans, fixed 5 - 10 years) Company loans (<1m EUR, new loans) Interest rates (%) 0 20 40 60 08 09 10 11 12 13 14 Construction sector Industry and trade Companies' view on access to credit Credit constraints: Percentage of companies reporting restrictive access to credit. Higher values indicate more restrictive access to credit from companies' perspective. Focus Germany 23 | December 2, 2014 Current Issues Chartbook – Public finances/Politics — In 2013 the general budget only edged into th e black thanks to the surpluses generated by the municipalities and the social - security scheme. The general budget for 2014 is projected to close to balance. But in 2015 the budget situation is set to deteriorate due to now weaker than hitherto expected ec onomic growth and slightly higher unemployment, caused among other things by the introduction of a minimum wage. As a result the general government budget will report a deficit of round about 0.5%. The German public debt ratio stood at 75.4% of GDP at the end of Q2 2014 (Q4 2013: 76.9%). The still relatively positive development reflects the small surplus in 2013 due to continuously rising revenues. In addition, refinancing costs continue to remain low. General government debt in Germany is set to decline f urther during the next few years, despite weaker growth dynamics. The fact that the bad banks continue to run down their portfolios will alone cut debt by 0.5% of GDP p.a. — In October, total tax revenues climbed by 3.1% yoy. From January until October, tot al tax revenues were about 3% higher than a year earlier and thus currently only slightly below the forecast for the whole year (3.4%). The target for the whole year will probably slightly be missed. Hence the solid growth of tax revenues continues this ye ar. Income tax is a major contributor to this development. On a cumulative basis it is now almost 5% higher than in the same period last year. However, the components of income tax develop differently. The final withholding tax on interest income and the n on - assessed tax on earnings (which largely corresponds to the withholding tax on dividends) are still lower on a cumulative basis than in the corresponding pre - year period, despite a large individual case in the latter case which resulted in a sharp increa se of the October reading. Regarding the final withholding tax the low interest rate environ - ment has a negative impact on the revenues. On the other hand the revenues of the highly profit - dependent corpor - ation tax are still (on accumulated basis) above t he pre - year period. Due to the still favourable situation on the labour market and strong wage gains the revenues of the wage tax, the most important component of the income tax, are 6% (cumulated until October) over the pre - year period and therefore the m ain driver for the positive revenue development. The VAT still grows robustly with a rate of 3% (yoy as well as on a cumulated basis), whereby recently the import VAT was the main driver rather than the domestic VAT. Sources: Deutsche Bank Re search, European Commission, Bundesbank 40 50 60 70 80 90 - 5 - 3 - 1 1 3 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Budget balance Public debt (right) Public debt and budget balance General government, as % of GDP, - 5.0 - 4.0 - 3.0 - 2.0 - 1.0 0.0 1.0 2.0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Structural Cyclical Budget balance Budget balance General government, % of GDP - 10% - 5% 0% 5% 10% 15% 20% 10 11 12 13 14 Tax revenues Monthly data, yoy and yoy 12 months moving average - 4% - 2% 0% 2% 4% 6% 8% 10% 12% 14% 12 13 14 Total tax revenues Income tax Value Added Tax Excise duties Development of important taxes Change yoy, 12 months moving average Focus Germany 24 | December 2, 2014 Current Issues Dieter Bräuninger (+49 69 910-31708, dieter.braeuninger@db.com) Nicolaus Heinen (+49 69 910-31713, nicolaus.heinen@db.com) Germany: Events of economic-, fiscal- and euro-politics DX Date Event Remarks 4 Dec ECB Governing Council meeting, press conference Review of the monetary policy stance. 8 Dec End of adjustment programme in Greece Greece will leave it s second macroeconomic adjustment programme and will be further backed by a flexible credit line from ESM. 11 Dec 2nd TLTRO The ECB is due to allot the second round of its targeted long - term refinancing operations. A total o f EUR 83 bn was taken up under the first operation in September, a disappointment relative to our projection for around EUR 100 bn take up and even higher market expectations. 18/19 Dec European Council The two focal points are likely to be the status of a Greek programme and the EUR 315 bn euro area - wide “stimulus” package. 1 Jan Lithuania due to join the euro area Lithuania will adopt the euro in 2015 (on 23 July the European Council approved Lithuania’s requires to join the euro are a at of 1 January 20 15 at a conversion rate of EUR 1=LTL 3.45280). 14 Jan ECJ Advocate General to deliver his opinion on the ECB's OMT Following the oral hearing on the German complaints against OMT on Oct 14, the Advocate General announced to give his assessment by mid - Janu ary, again in open court. The GCC will then take its own decision in the light of the preliminary ruling of the ECJ. Source: Deutsche Bank Research Focus Germany 25 | December 2, 2014 Current Issues 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 5 Dec 2014 8:00 New or ders manufacturing (Index, sa), pch mom October - 1.5 0.8 8 Dec 2014 8:00 Industrial production (Index, sa), pch mom October - 0.3 1.4 9 Dec 2014 8:00 Trade balance (EUR bn, sa) October 18.6 19.4 9 Dec 2014 8:00 Merchandise exports (EUR bn, sa), pch mom (yoy) October - 0.5 (5.1) 6.1 (6.2) 9 Dec 2014 8:00 Mer chandise imports (EUR bn, sa), pch mom (yoy) October 0.6 (5.8) 7.1 (6.0) 16 Dec 2014 9:30 Manufacturing PMI (Flash) December 50.5 50.0 16 Dec 2014 9:30 Services PMI (Flash) December 52.5 52.1 18 Dec 2014 10:30 ifo business climate (Index, sa) December 105.0 104.7 30 Dec 2014 8:00 Import prices (Index, sa) pch mom (yoy) November - 0.7 ( - 2.0) - 0.3 ( - 1.2) 5 Jan 2015 14:00 Consumer prices preliminary (Index, sa), pch mom (yoy) December 0.2 (0.4) 0.0 (0.6) 7 Jan 2015 10:00 Unemployment rate (%, sa) December 6.6 6.6 8 Jan 2015 8:00 Retail sales (Index, sa), pch mom November 0.5 1.9 15 Jan 2015 8:00 Real GDP (Index, sa), % qoq 2014 1.4 0.1 Sources: Deutsche Bank Research, Federal Statis tical Office, Federal Employment Agency, ifo, Markit Focus Germany 26 | December 2, 2014 Current Issues Heiko Peters (+49 69 910-21548, heiko.peters@db.com) Oliver Rakau (+49 69 910-31875, oliver.rakau@db.com) Financial forecasts DX US JP EMU GB CH SE DK NO PL HU CZ Key interest rate, % Current 0.125 0.10 0.05 0.50 0.00 0.00 0.20 1.50 2.00 2.10 0.05 Dec 14 0.125 0.10 0.05 0.50 0.00 0.00 0.20 1.50 2.00 2.10 0. 05 Mar 15 0.125 0.10 0.05 0.75 0.00 0.00 0.20 1.50 2.00 2.10 0.05 Sep 15 1.000 0.10 0.05 1.00 0.00 0.00 0.20 1.50 2.00 2.10 0.05 3M interest rates, % Current 0.23 0.20 0.08 0.55 Dec 14 0.35 0.15 0.10 0.55 Mar 15 0.35 0.15 0.10 0.80 Sep 15 1.30 0.15 0.10 1.05 10Y government bonds yields, % Current 2.07 0.60 0.70 1.93 0.43 1.00 0.93 1.89 Dec 14 2.35 0.50 0.90 2.50 0.70 1.75 1.50 2.75 Mar 15 2.50 0.55 1.2 0 2.70 0.80 1.90 1.60 2.93 Sep 15 2.70 0.60 1.40 3.10 1.00 2.20 1.80 3.32 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 1.25 117.53 0.79 0.64 1.20 9 .24 7.44 8.60 4.18 307.14 27.61 Dec 14 1.25 117.00 0.77 1.62 1.22 8.95 7.46 8.00 4.15 310.00 27.50 Mar 15 1.22 119.00 0.76 1.61 1.23 8.90 7.46 7.95 4.13 313.00 27.50 Sep 15 1.18 123.00 0.74 1.59 1.25 8.80 7.46 7.85 4.08 319.00 27.50 So urces: Bloomberg, Deutsche Bank Focus Germany 27 | December 2, 2014 Current Issues German d ata m onitor DX Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Jun 2014 Jul 2014 Aug 2014 Sep 2014 Oct 2014 Nov 2014 Business surveys and output Aggregate Ifo bu siness climate 108.9 110.8 110.3 106.3 109.6 107.9 106.3 104.7 103.2 104.7 Ifo business expectations 106.0 107.8 106.0 101.4 104.7 103.3 101.6 99.3 98.3 99.7 PMI composite 54.5 55.4 55.2 54.5 54.0 55.7 53.7 54.1 53.9 52.1 Industry Ifo manufacturing 104.6 106.8 106.5 102.1 105.2 103.6 102.2 100.6 98.4 99.5 PMI manufacturing 52.9 55.0 52.8 51.3 52.0 52.4 51.4 49.9 51.4 50.0 Headline IP (% pop) 0.5 1.1 - 1.1 - 0.3 0.4 1.6 - 3.1 1.4 Orders (% pop) 2 .0 0.0 - 0.2 0.1 - 2.4 4.8 - 4.2 0.8 Capacity Utilisation 83.3 83.5 84.3 84.0 83.7 Construction Output (% pop) - 0.5 5.1 - 6.0 0.0 3.3 - 1.4 - 1.1 2.4 Orders (% pop) 2.5 1.6 - 5.0 - 2.9 - 6.4 5.9 - 2.2 - 2.7 Ifo construction 121.3 122.6 120.5 119.1 120.5 119.3 119.5 118.4 118.3 119.1 Services PMI services 54.1 54.0 55.1 55.7 54.6 56.7 54.9 55.7 54.4 52.1 Consumer demand EC consumer su rvey - 2.8 0.3 4.3 1.0 4.3 3.9 0.3 - 1.1 - 0.7 - 1.6 Retail sales (% pop) 0.1 1.5 - 0.3 - 0.4 1.0 - 0.9 1.3 - 2.8 1.9 New car reg. (% yoy) 1.6 2.8 - 0.3 4.1 - 1.9 6.8 - 0.4 5.2 3.7 Foreign sector Foreign orders (% pop) 3.7 - 1.3 0.2 1.7 - 3.2 7.6 - 6.5 3.7 Exports (% pop) 1.8 1.1 0.5 2.3 0.9 4.8 - 6.7 6.1 Imports (% pop) - 0.2 3.9 - 1.1 - 0.7 3.6 - 1.4 - 4.6 7.1 Net trade (sa EUR bn) 54.2 48.4 52.4 60.6 16.6 22.1 19.1 19.4 Labour market Unemployment rate (%) 6.9 6.8 6.7 6.7 6.7 6.7 6.7 6.7 6.6 6.6 Change in unemployment (k) 15.3 - 43.0 - 19.7 2.7 6.0 - 13.0 1.0 9.0 - 23.0 - 14.0 Employment (% yoy) 0.5 0.7 0.9 0.9 0.9 0.9 0.9 0.9 1.0 Ifo employment barometer 107.2 107.5 106.8 106.4 106.0 106.0 107.0 106.0 106.9 105.4 Prices, wages and costs Prices Harmonised CPI (% yoy) 1.3 1.0 0.9 0.8 1.0 0.8 0.8 0.8 0.7 0.5 Core HICP (% yoy) 1.1 1.1 1.1 1 .2 1.1 1.2 1.2 1.2 1.1 Harmonised PPI (% yoy) - 0.7 - 1.0 - 0.8 - 0.8 - 0.7 - 0.8 - 0.8 - 1.0 - 1.0 Commodities, ex. Energy (% yoy) - 10.4 - 11.1 - 4.9 - 1.8 - 3.5 - 3.0 - 1.3 - 1.1 0.9 Oil price (USD) 109.3 108.2 109.7 102.0 111.8 106.9 101.6 97 .4 87.3 Inflation expectations EC household survey 25.5 22.0 16.9 13.4 14.6 15.3 14.8 10.0 11.1 8.5 EC industrial survey 6.1 5.6 2.3 4.2 2.6 3.3 4.1 5.2 4.7 3.2 Unit labour cost (% yoy) U nit labour cost 1.4 0.8 2.1 2.0 Compensation 2.0 2.8 2.6 2.5 Hourly labour costs 2.2 0.8 2.5 2.3 Money (% yoy) M3 2.7 3.5 4.2 4.8 4.2 4.4 5.0 4.8 4.0 M3 trend (3m cma) 4.3 4.5 4.7 4.6 Credit - private - 3.1 - 3.6 - 3.5 1.4 - 3.5 - 2.8 1.0 1.4 Credit - public - 17.1 - 1.5 9.7 5.9 9.7 11.4 5.1 5.9 % pop = % change this period over previous period. Sources: Deutsc he 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 Mai n Fax: +49 69 910 - 31877 E - m ail: marketing.dbr@db.com Available faster by E - mail: marketing.dbr@db.com Focus Germany is part of the Current Issues series and 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 detaile d data m onitor of German economic indicators. Focus Germany is a monthly publication.  Further disappointments ................................ ........... November 5 , 2014  Heightened risks ................................ .................... September 30, 2014  Ice bucket challenge and structural investment gap ................................ ......... September 2, 2014  Weaker recovery in H2 ................................ .................... August 4, 2014  Solid growth, low inflation (despite ECB) ......................... June 30, 2014  Strong domestic economy to suffer from good intentions ................................ ........................... June 4, 2014  So far, so good ................................ ................................ .... May 2, 2014  2% GDP growth in 2015 despite adverse employment policy ................................ ....... February 28, 2014  Onward and upward ................................ .................... January 27, 2014  Launchpad to the past ................................ ............. November 29, 2013  Exuberance and fear ................................ ................... October 31, 2013  Germany after the elections ................................ .......... October 1, 2013  German GDP up 0.5% in 2013 – despite slowdown in H2 ................................ ........... September 3, 2013  Structural growth limitations ................................ .............. July 31, 2013  Structural improvements support exceptional position ....... July 1, 2013  The brave new world of monetary policy ........................... June 4, 2013  The worst is (probably) over ................................ ............. March 1, 2013  Gradual improvement in 2013 ................................ ..... January 28, 2013  German business cycle at the turning point? ............ December 3, 2012  Euro crisis brings economy to a standstill in the winter half ................................ ......... November 2, 2012  Global economy hurts - no quick fix ................................ .. July 25 , 201 2 Tell me, pray ................................ ................................ .... June 17 , 201 2  The austerity versus growth debate – © Copyright 2014. Deutsche Bank AG, Deutsche Bank Research, 60262 Frankfurt am Main, Germany. All rights reserved. When quoting please cite “Deutsche Bank Research”. The above information does not constitute the provision of investment, legal or tax advice. 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