For evidence of Germany’s economic slowdown this year, look no further than the DAX. The blue-chip index of the country’s top 30 listed firms has plunged by 15 percent since its high in January, from 13,500 to the depths of 11,500 this month. The shares of car parts supplier Continental, chemicals group Covestro and construction firm Heidelberg Cement lost more than 30 percent.
Investors are clearly worried, and this is in turn worrying economists. "With falling share prices, the mood in the economy can get worse," warns Bernd Meyer, head investment strategist at the private bank Berenberg.
As has often been the case in the past, the chain reaction of speculation, psychology and reality has taken hold. The International Monetary Fund reduced its growth forecast for the global economy this year from 3.9 to 3.7 percent, and the EU Commission did the same, cutting Europe’s forecast from 2.3 to 2.1 percent. It may cut it further.
As a big exporter, this hurts Germany. The Handelsblatt Research Institute has slashed its 2018 growth forecast for the country from 2.5 percent to 1.9 percent. "The declining economic expectations for the global economy and thus also for Europe and the German economy show increasingly clearly that export-strong German companies will not have to adjust to a short dent, but presumably to a longer-term downturn," says HRI head Bert Rürup.
Profit and loss
German firms feel the pain. Their business is strongly internationalized, with listed companies generating, on average, around 20 percent of their turnover in Germany, 30 percent in the rest of Europe, around 20 percent in America, 15 percent in China and the remaining 15 percent in the rest of the world. So if there is a crisis in several markets at the same time, it has an impact. Brexit and the threat of US-led trade wars don’t help.
The result has been that many DAX firms, including Deutsche Post, Daimler, Fresenius, the conglomerate Thyssen-Krupp and consumer goods group Henkel, plus Continental and Heidelberg Cement, cut their annual profit forecasts. Unlike last year, they can no longer pass on cost increases to customers.
Germany’s premier industry, the auto industry, hasn’t escaped. BMW, for example, is closing its Mini production plant in the UK for four weeks as custom duties drive up costs. It’s also selling fewer cars: the group’s sales of 237,781 vehicles in September was 1 percent down on the same period last year. CFO Nicolas Peter blamed the fall on the US-China trade dispute, adding that it had cost the carmaker €300 million this year. China is one of the most important markets for German automakers.
Overall, there is no indication in Germany that the upswing that began in 2009 and peaked last year will lead straight into a recession. But the forecasts are still valid: German companies will earn slightly less in 2018 than in 2017. Even though that was a bumper year, it shows that they are becoming more cautious. Stagnation is in sight.
Ulf Sommer reports on companies and financial markets. To contact the author: [email protected]