German rent cap: Probably only under a green-red-red federal government (which seems unlikely) – but even then, water would still not flow uphill

For the average German a sack of rice falling over in China has long been none of his business. In the meantime, however, the importance of events in China for the German economy has come to be recognised. China's unexpectedly weak economic indicators and the fluctuations in the Chinese stock market have increased the scepticism over recent months about whether China will achieve the growth target set by the government for this year of around 7%. Our China economist remains confident that the Chinese economy will stabilise following expected GDP growth of nearly 7% yoy in Q3 thanks to the support measures instigated by the government. However, German exporters are already having to contend with a marked softening of demand from China. [more]

Given the merely average state of communications infrastructure in Germany today, this country could fall behind in the international competition to attract investment. This worry is exacerbated by the fact that even within Germany there is a risk of a significant gulf developing between the regions. However, while broadband expansion is indeed making progress in the densely populated regions, major challenges exist in rural regions with respect to return on investment. When it comes to bridging systemic profitability gaps, the government will have to step into the breach if such projects are also to progress. The funding additionally earmarked in the federal budget and the revenues currently generated from "Digital Dividend II" should provide stimuli for expansion. However, despite government aid it must always be clear that broadband expansion can only be profitable in the first place if modern networks are complemented with modern services. [more]

German manufacturers increased output by 0.2% qoq in real terms in Q2 2015. However, growth will probably be slower in H2 than anticipated to date. Therefore, we are revising our forecast for 2015 output to the downside – from 1.5% so far to 1% (both in real terms). The moderate uptrend is roughly set to continue in 2016. Manufacturing output could climb by 1% again in the coming year. This means its growth rate would continue to fall short of the long-term average. Furthermore, manufacturing's share in Germany's total gross value-added would decline. [more]

As one possible way of reacting to the loss of our data sovereignty, efforts should be taken to launch education campaigns without delay (ideally on an international basis). This can help to establish greater internet and media expertise among the population at large in the medium to long run. Furthermore, an international legal framework would be desirable in order to regulate the use of data and algorithm-based technologies as well as limiting lax data-collection practices. [more]

Debate over blockchain technology is raging in many online and offline media at present. In principle, the technology constitutes a decentralised ledger system that can be coordinated via peer-to-peer (P2P) networks. Any ownership or security issues arising in connection with the decentralised transactions conducted across the ledger system are handled by P2P mechanisms as well, i.e. also without a central node. Ownership status is established via the digital exchange of cryptographic keys (public vs private), while fraudulent transactions can largely be ruled out with the help of the cryptographic 'proof of work' system. Using a proof of work, blockchain technology enables the rapid, inexpensive transfer of assets and financial products between individuals who neither know nor trust one another, without a compelling need for an intermediary to reduce existing information asymmetries. [more]

If all goes well, the Iranian economy could begin to reintegrate into the world economy in early 2016. This harbours opportunities especially for Iran itself and its 80 million inhabitants. However, it is also likely to provide a moderate stimulus to world trade and German exports. In addition, increased Iranian oil production could dampen oil prices and thus support the growth of real income of German households. [more]

Euro area money market funds have returned to growth, according to the latest ECB data. By March 2015, they managed EUR 1,032 bn in assets, up by EUR 120 bn from a year earlier. A similar surge in assets was last seen before the financial crisis, which marked the beginning of a prolonged decline.
Amazingly, the upward trend in assets occurred while money market yields hit record lows, especially for the euro. So what is really behind MMF asset growth? [more]

The digital strategies currently unveiled by traditional banks do not go far enough and often deliver only fragmented silo solutions. With each division “doing its own thing” and adopting the silo principle that stifles innovation, many (digital) financial innovations are primarily experienced at the client front-end and are also warmly welcomed. However, the banks will not achieve resounding success using such methods. [more]

These days, financial market commentaries are often laced with expressions such as "topsy-turvy" and "Alice in Wonderland". Recently, even Bank of Japan Governor Kuroda described the need for unconditional faith in the inflationary impact of Japanese monetary policy with a reference to Peter Pan, quoting Peter as saying that (in his world) "the moment you doubt whether you can fly, you cease forever to be able to do it". [more]

The average age of cars on German roads hit a new record high of nine years at the beginning of 2015. The primary reason for this is the improved quality of vehicles. Although the diesel share of new car registrations has averaged well over 40% in recent years, diesel only constituted 31% of the cars on German roads at last count. The durability of cars is causing the mix of cars in service to change only slowly. The diesel car example suggests that it may take many years before cars powered by alternative technologies constitute a major share of all the cars registered in Germany. The vision of a future with largely climate-neutral or locally emission-free vehicles on German roads by 2050 is virtually unattainable as things currently stand. [more]

Germany was an attractive destination for migrants in 2014 for the fifth year in a row. The net migration balance climbed again by roughly 20% on the year and clearly exceeded the 500,000 mark for the first time since 1992. Roughly 1.4 million persons immigrated to Germany, the second highest total in the last 65 years (1992: 1.5 million). Since the beginning of the sovereign debt crisis in the eurozone in 2010 a net 1.7 million persons have migrated to Germany, so despite a shrinking domestic population the total population has expanded by approximately half a million. [more]

Industry 4.0 (also known as integrated industry, industrial internet) is currently the subject of intense debate. This megatrend sets out to change the way goods and services are created and distributed, reshaping the industrial landscape on a national and global scale. China intends to play a leading role in this digital evolution. A wide range of policies have been initiated and sizeable progress in various areas has been made. The country is determined to seize the outstanding opportunity at hand, as the recently unveiled “Made in China 2025” plan underlines. China still has a long road ahead. However, with its new plan it combines a long-term vision with concrete actions in the proclaimed “Year of Innovation”. [more]