Economic weakness, political turbulence

A country’s prosperity is still closely linked to its energy consumption. As 80% of the global energy consumed is based on fossil fuels, high prosperity (measured as GDP per capita) tends to imply high per-capita CO₂ emissions. France is the G20 country which is closest to the goal of being quite prosperous on the one hand and keeping its per-capita carbon emissions relatively low on the other. Nevertheless, France is far from being a climate-neutral economy (which is the political goal). [more]

The shift towards alternative propulsion technologies, such as e-mobility, is currently the biggest challenge for the global auto industry. So far, this structural change is driven mainly by government regulation and not so much by market forces. At the moment, electric vehicles only have significant market shares if they are heavily subsidised. While e-cars can help to reduce carbon emissions in the EU, the favourable climate effect will be smaller than many supporters of electric mobility expect. A higher market share of e-cars will lead to manageable job losses in the German auto industry; however, local factors are key for value added. [more]

In 2019 we've been asked lots of questions about the German economy, politics – fiscal policy and the black zero, in particular – and, more fundamentally, about Germany’s future given the risk of a more permanent reversal of globalisation, the increased environmental focus, the challenges for the German car industry and the widespread notion that Germany might miss the boat on the big data economy and other technological trends. This is why we are also discussing these issues in this report. For 2020 we anticipate a gradual recovery in global trade, which should enable a piecemeal recovery in exports and help end the industrial recession. We expect equipment spending to decline in 2020. On the other hand, the domestic growth pillars – private and government consumption as well as construction – should continue to expand at a healthy clip. But annual GDP growth of 1% forecast for 2020 after 0.5% in 2019 is clearly underwhelming, especially since the acceleration versus 2019 is almost exclusively the result of an unusually high number of working days in 2020. [more]

With their „European Green Deal“, the European Commission expressed an admirable ambition to be climate-neutral by 2050. Are such ambitious long-term goals good for the credibility of European climate protection policies? Especially when they include only the vaguest notions of how to get there, and when the measures for more efficient climate protection that can be implemented in the short-to-medium term are not making sufficient progress? I don’t think so. [more]

Passenger numbers at German airports recently fell for the first time since December 2017. The decline is largely due to economic reasons, such as the cyclical slowdown and lower supply due to airline bankruptcies. Air travel is increasingly coming into the focus of climate-policy regulation. Traffic at regional airports may be hit most. In contrast, large airports are likely to see passenger numbers increase further. “Flight shame” looks set to remain a niche phenomenon. [more]

As German policymakers plan to do without nuclear power, coal and lignite in the future, natural gas remains the last traditional source for power generation. And since Germany targets complete climate neutrality by 2050, natural gas will also be a transitional source of energy – nothing more and nothing less. The completion and operation of Nord Stream II is clearly in line with the declared goals of German energy policy. Nord Stream II will improve supply security and pipeline gas, such as that delivered by Nord Stream II, is more environmentally friendly than LNG. [more]

Between 2000 and 2018, German net energy imports declined by almost 12%. Oil and nuclear energy imports were down considerably as oil heating becomes less popular and the German government has decided to give up nuclear energy. In contrast, net natural gas imports are trending upwards. Coal imports did not start to decline until 2016 and were still considerably higher in 2018 than in 2000 because domestic coal mining was abandoned. Germany’s dependence on energy commodity imports has not declined much over time. In 2018, almost 71% of the necessary energy commodities were imported (2000: 72.6%). [more]

A new (green) 'fiscal deal' in Germany? The climate protection programme is no game changer for fiscal policies as it will be largely counter-financed by additional revenues. The ecological steering effect of the climate package is also limited since the initial carbon price will be low. Speculations that Germany will finally relent and embark on a decisive fiscal policy loosening have proved to be overplayed. We stick to our call that we will not see a fiscal package unless Germany enters a severe recession. Still, Germany’s budget surpluses are set to narrow considerably in 2019/20. (Also included in this issue: German labour market, industrial production, auto industry, the view from Berlin) [more]

The climate action package is a classic example of political compromise. It aims to support climate protection without overextending private households and companies. Criticism is perfectly justified. In the final analysis, however, the climate action package is also a reflection of the society's attitude towards climate protection: Whilst a majority of Germans support more climate protection, only a few are willing to shoulder the financial burdens. [more]

So far, Germany’s efforts to arrive at a more sustainable energy profile (the ‘Energiewende’) have focused on the electricity sector. However, attention is increasingly shifting towards the transport sector and its steadily rising carbon emissions. Decades-old demands, such as replacing road by railway transport, are being repeat-ed once again, even though they have been found impossible to realise. And some new concepts are being presented, such as micro e-mobility. However, their contributions to transport reform are negligible at best; they may even prove counterproductive. Ultimately, the solution is simple, if uncomfortable: long-term climate protection goals (i.e. virtual carbon neutrality) can only be reached by a considerable decline in traffic, unless technology makes significant progress. Policymakers will find it difficult to convey this message, seeing that individual mobility is one of the key concepts of a liberal society. [more]

As our planet heats up, the public debate has increasingly focused on the use of fossil fuels in the last few years, in particular coal. There is only one major exception, namely the US, whose current administration doubts that human activities are behind the climate change. German hard coal had a share of only 6% in total coal consumption in 2018. 99.9% of the lignite consumed were mined in Germany itself, namely in the Rhineland, in Lusatia and in the Central German district. A number of market observers have been skeptical about or even downright against phasing out lignite mining, mainly due to the negative impact on employment. This is probably the main reason why policymakers have decided to provide up to EUR 40 bn to support/subsidise the exit from lignite production by 2038. [more]

We see Germany in a technical recession, as we expect another ¼% GDP drop in Q3. Our forecast for 2019 is now 0.3%. Given no indication for a rebound we lowered our 2020 forecast to 0.7%. We acknowledge these revisions do not properly account for the recent accumulation of risks. Given the increasingly fragile state of the global economy, the realization of one or more risks could easily push the economy into a completely different scenario, where growth revisions of a few tenths of a percentage point will not be sufficient. (Also in this issue: German automotive industry, chemical industry, house prices, corporate lending, the view from Berlin, digital politics.) [more]