Handelsblatt Business Monitor Eager to Invest

Despite a possible exit of Greece from the euro zone, German firms’ willingness to invest has reached a four-year high, a survey by Handelsblatt found.
Happy to invest: VW is building a new factory in Poland to produce 85,000 Crafter vans annually and employ 3,000 people.

Despite the Greek debt crisis reaching a climax this week, Germany’s companies remained upbeat about business opportunities.

Handelsblatt’s Business Monitor, a survey of 664 German executives conducted by research firm Forsa in June, showed the propensity to invest is at a four year high. The willingness to invest has only been so large once before since the outbreak of the financial and economic crisis in 2008, and that was in June 2011.

Some 51 percent of the managers intend to increase their investments in the next 12 months, the Handelsblatt Business Monitor showed. The poll also showed 40 percent of company managers want to keep their current investments at the same level.  A mere 9 percent want to reduce it.

The weaker euro in combination with strong domestic demand will continue to drive up sales at home and abroad. Klaus-Günter Klein, Chairman, accountancy firm Warth & Klein Grant Thornton

Two cases confirm the results. Volkswagen is currently spending €1 billion on a new factory on a 540 acre plot in the Polish town of Wrzesnia. A the site, 3,000 workers will start constructing the successor model to the VW Crafter van in about a year’s time.

Siemens is constructing an offshore wind-power factory off the east coast of England for about €200 million, creating 1,000 jobs.

The investment boom is being driven by a euphoria unusual for Germany.

“The weaker euro in combination with strong domestic demand will continue to drive up sales at home and abroad,” said Klaus-Günter Klein, head of the accountancy firm Warth & Klein Grant Thornton, which regularly surveys 2,500 companies in 34 different economies.

According to the firm, confidence about the economic climate shown by German managers reached an all-time high in July this year. And this great wave of optimism is being acted out in the form of new investments.

 

The biggest Investors-01

 

After the financial and economic crisis in 2009 companies had attached more importance to increasing their cash reserves, to hedge against future crises. Over the past five years, for example, the thirty German blue chip DAX companies had more than doubled their cash reserves to €140 billion, or $154 billion.

But those reserves have not been increased for a good year or so. Companies are no longer hoarding their money, they are spending it.

“It is important to make timely investments,” said Dominik Asam, chief financial officer at Infineon, the semiconductor firm based in Neubiberg, a town near Munich.

Not just the declarations of intent, but what has actually been done, is approaching record levels. Take Siemens for example: In the past ten years, no company has invested more in Europe than Germany’s largest industrial engineering company, which makes power converters, gas turbines and trains, a study by consultancy company EY showed.

Volkswagen tops the list when it comes to the creation of jobs with foreign investment in Europe. In fact, Munich-based Siemens and carmaker VW, headquartered in Wolfsburg, lead the pack of the most active investors in Europe, the EY study revealed.

VW’s new investments created 31,000 new jobs in Europe over the last 10 years. This figure does not include the many investments made in Germany itself. New factories were built, new development or design centers set up and investments made in logistics centers. With about 600,000 employees, VW is the world’s fifth largest employer.

Between 2005 and 2014, Siemens invested in 138 different projects in other European countries setting up research centers or production units there, making the industrial group the largest investor in direct investment in Europe in terms of number of projects, the EY study showed. In second and third place are the American technology firm IBM and Volkswagen, with 126 and 110 investment projects, respectively.

"German companies have invested massively in Europe in recent years. In doing so, they are making a considerable contribution to the development and recovery of the European economy,” said EY partner Peter Englisch.

Last year, Volkswagen alone has created more than 7,200 jobs in other European countries - as many as all British and Italian companies put together, according to the EY study.

Deutsche Post, Germany's national postal service, and German car parts maker Bosch are also among the world's biggest investors in Europe. For instance, Bosch is investing €300 million in the expansion of its production center in Bursa, Turkey. A 6,000 square meter diesel injector factory building is being constructed at the site, located 90 kilometers from the Turkish capital Istanbul.

Meanwhile, Deutsche Post is building an air freight hub in Brussels, Belgium, for over €100 million, complete with a vehicle fleet, sorting center and office complex.

Compared with, say, French and British businesses, German companies' commitment to Europe has been disproportionately high in the last ten years. And yet, Germany is often criticized for profiting from the European Union's single market without doing much to advance the European economy as a whole.

But the results of the EY study show this criticism of German companies to be inaccurate. For instance, Germany's economic power is more than a third larger than that of France. German companies have created almost four times as many jobs (28,953) in Europe as the French (7,862) last year. British companies generated only 4,535 new jobs on the continent.

 

 

How companies gauge the economic situation-01

In the past ten years, German companies have created 254,000 new jobs in mainland Europe. That is more than British, French and Italian firms together. Of the ten companies that generated the most new positions in Europe in 2015, three – VW, Siemens and Bosch – came from Germany.

The thirty blue chip Dax-listed companies created 65,885 new jobs abroad in the last year alone, according to Handelsblatt calculations - more than half of those jobs were in Europe.

For years, German companies were oriented more towards the East to increase their returns in low-income countries. But even China, the number one destination, is losing its appeal. Growth is tailing off, wages are increasing and the government's restrictions on investments are making things more difficult.

Disenchantment has been brought on by spectacular raids during which the authorities accused Western firms of price fixing. In this way, China is attempting to support its own manufacturers.

According to surveys, between 25 and 35 percent of European and American firms do not want to increase their investments in China. These are the highest rates since the 2009 economic crisis.

"Many firms are waiting to see what the restructuring of China's economy means in practice,” industry expert Armin Schmiedeberg of consulting firm Bain & Company said.

Most companies are putting their money where their mouths are and investing it elsewhere: in Europe, but also in the United States. The latter, the world’s largest economy, was the first to recover from the financial crisis.

Since then, the United States has become more attractive, with high growth rates, affordable energy, a reindustrialization and strong demand from consumers and domestic companies. For instance, German chemical company BASF has invested one billion euros in the construction of an ammonia plant in the United States. Car manufacturer BMW has invested the same amount to expand its factory in Spartanburg, North Carolina and produce more off-road vehicles.

 

Ulf Sommer reports for Handelsblatt on companies and financial markets. To contact the author: [email protected]