The German market is the largest in Europe, attracting many of our clients. Germany has an export-driven economy, which places an even emphasis on services and production. The country offers a stable environment for investors, as well as access to the EU's domestic market. It is also world-renowned for its manufacturing in automotives, mechanical and electrical engineering, and chemicals. Our coverage – using our unique Total Analysis model – ensures that our clients make sound, risk-assessed decisions in Germany. We keep them informed of the latest market moves and political developments, supported by our interactive data and forecasting. They also benefit from in-depth analysis of 21 of Germany's most important industries, as part of our 'top-down' and 'bottom-up' perspective. It is our job to make it easier for you, as our client, to reap rewards in Germany.
Germany Country Risk
Our long-held bearish view towards the German economy appears to be playing out. We have moved even further below consensus on German growth for 2014/15, as weakening confidence will cap both investment and consumption growth over the coming quarters.
While we believe Germany's current account surplus has peaked, narrowing of the surplus over the next five years will be limited by tight fiscal policy, which will in turn hamper the regional economic recovery.
German energy policy will continue to drive significant structural economic imbalances. While attempts to shield industry from the cost of transition towards renewable energy resources will curtail consumption, German industrial competitiveness will eventually suffer from higher energy costs.
We expect German foreign policy to become...
Germany Industry Coverage (21)
BMI View: German pork producers will come under pressure, owing to the ban on meat imports from Western countries that has been imposed by Russian authorities. On the other hand, sugar production should expand at a stronger pace over the coming years, owing to an increase in growing areas and yields, as well as the potential end to EU's sugar production quota in 2017. Wheat output should also have a strong harvest in 2014/15, although there are some concerns over wheat quality owing to some wet spells.
|Germany - BMI Agribusiness Market Value By Commodity (% of total)|
In 2013, vehicle sales in Germany declined 4% on the back of a 4.2% drop in the passenger car segment and a 2.2% fall in the commercial vehicle (CV) segment. In 2014, we expect to see a return to growth in the industry, with total vehicle sales forecasted to increase 2.8% over the year. This comes from an expected 2.0% increase in passenger car sales and a 10.5% increase in the CV segment.
In 2013, vehicle production in Germany increased 1.2% on the back of a 1.1% increase in the passenger car segment and 2.3% raise in CV output. In 2014, we forecast a 5.9% increase as passenger car output is expected to increase 6% and CV output increase 4.1%.
Defence & Security
Germany Defence & Security
BMI View : BMI's Germany Defence & Security Report for Q115 examines the country's defence posture, defence procurement initiatives and its defence spending. Chiefly, the report examines the sometimes painful transition of Germany's armed forces from their Cold War-era role of defending the country against Soviet and Warsaw Pact aggression, into a force capable of meeting the security challenges of the 21st century.
We expect Germany to spend up to USD47.5bn on defence in 2015. Since the start of the decade, German defence spending has fluctuated, sustaining an average value of USD47.7bn between 2011 and 2014. In 2016, we expect defence spending to rise to USD46.9bn. However, we expect German defence spending levels to level out, sustaining more balanced growth over the years from here on out. For example, in 2017, we expect defence...
Food & Drink
Germany Food & Drink
BMI View: Our outlook for Germany's food and drink industry has turned more cautious, as the country's major economic and private consumption indicators signal a potential slowdown over the coming quarters. While we have maintained our forecasts for the Germany's food and drink sector, we highlight downside risks arising from the ongoing boycott of German exports to Russia and the subsequent weakness in wage growth.
Headline Industry Forecasts (local currency)
Total food consumption growth (year-on-year, y-o-y) in 2014: +4.0%; compound annual growth rate (CAGR) 2013-2018: +3.7%
Soft drinks sales growth (y-o-y) in 2014: +4.3%; CAGR 2013-2018: +3.9%
Alcoholic drinks sales growth (y-o-y) in 2014: +1.3%; CAGR 2013-2018: +1.0%
Germany Freight Transport
Following a year in which we saw increasing volumes across the whole of Germany's freight transport sector, BMI believes 2015 will see further growth.
Total trade is projected to pick up with our Country Risk team forecasting a y-o-y increase of 1.35% in 2015, following an estimated growth at the same rate in 2014.
Road freight is set to continue to dominate the sector and is projected to grow by 2% in 2015. The sector was unable to defy the downturn losing more than 11% of freight volumes over 2009 and 2010 before a strong recovery begun in 2011.
Port of Hamburg tonnage is also expected to grow, having completed, according to our estimates, a full recovery to its pre-downturn levels in 2014.
Headline Industry Data
2015 Air freight tonnage is expected to grow by 1...
Germany Information Technology
BMI View: The outlook for the Germany's IT market has been downgraded this quarter as a result of the economic slowdown and heightened downside risk. However we expect total spending will continue to increase in each year of our forecast, with demand for IT services including cloud computing and big data forecast to outperform. Additionally, Germany continues to attract inward investment from leading global IT market vendors, with the Internet of Things investment a leading trend in 2014. Vendors are attracted to Germany by, an educated workforce and the presence of several major IT companies in the market. There is however downside from IT market trends as well as economic headwinds. For instance, the issue of data security and...
BMI View: We maintain our gloomy outlook for Germany's construction sector, given neither the government in the form of infrastructure investment nor the private sector in real estate is investing enough to maintain growth at levels seen 2014. We expect growth to reach 2% in 2015, with the eurozone and Ukraine crisis being the major downside risks. The residential sector, rail infrastructure and renewables projects remain the market's bright spots.
Low levels of domestic investment remains are largest concern for the German infrastructure market and with a government committed to fiscal prudence and business sentiment at low levels due to concerns over the economy, we do not expect...
BMI View: Germany's formidable insurers have performed well in both of the major segments (NB we include health insurance in the non-life segment). However, both life and non-life premiums will likely continue to grow only slowly through the forecast period. The low interest rate environment remains challenging.
Both the major segments of Germany's massive insurance sector are slowly growing. In the life segment, a number of the leading players achieved good growth in new business premiums in H114 through the focus on particular products. Overall, though, the latest reports suggest that total premiums have expanded slowly. The very low interest rates have meant that life insurers have had to pay greater-than-usual attention to the profitability of the products that they are selling. Over the...
Germany Medical Devices
BMI Industry View : Despite an increasingly challenging operating environment, Germany remains one of the most attractive medical device markets in Western Europe (WE), testament to the underlying strength of the German economy and a commitment to maintain a high quality healthcare service. Whilst austerity measures in the health sector have hit the pharmaceutical industry harder than the medical device industry, measures to restrict the growth in spending on hospital and ambulatory services are inevitably increasing ...
Germany's metals sector will continue to feel the squeeze as output prices remain low and costs stay stubbornly high. We forecast subdued growth in consumption of key metals such as steel, copper and aluminium, chiefly due to a muted outlook for economic activity in the country. Key metal consuming sectors such as autos and construction will remain weak. For autos production, we do not foresee a return to growth until 2018 at the earliest.
Illustrative of challenges faced by the wider metals sector, steel mills will remain under significant pressure, as low output prices squeeze margins. This will encourage consolidation of operations and dampen output growth. We forecast that steel production will post only erratic growth in the coming years, as low prices will continue to bite.
|Germany - Crude Steel Production|
We expect Germany's mining industry value to grow modestly, averaging 2.8% growth y-o-y from an estimated USD5.8bn in 2014 to USD6.8bn in 2018. Despite government efforts to switch to renewable energy sources for power generation, brown coal will remain a crucial fuel over coming years. As a consequence, lignite mining will endure in Germany over our forecast period to 2018.
|Modest Gains Over Coming Years|
|Germany - Mining Industry & Production Growth|
Beyond the coal sector, we expect Germany's iron ore sector to record modest growth in the next five years. Germany's iron ore production...
Oil & Gas
Germany Oil & Gas
BMI View: Germany will remain the biggest consumer and importer of oil in Western Europe for the next 10 years. The country will also be the largest importer of natural gas.
BMI View: Although the volatility seen in the domestic market had an beneficial impact on German petrochemicals industry in H214, but in the long-term we believe that the Transatlantic Trade and Investment Partnership (TTIP) will determine the structure of the industry amidst growing fears that German producers will lose out.
Representing a quarter of all European Union (EU) chemicals sales, the German market will be pivotal to the performance of the regional chemicals market. A slowdown in domestic demand will lead to a reduction in imports and as such European producers cannot bank on German demand to compensate for weaknesses elsewhere in the EU market.
The recovery in Germany's chemical industry faltered in Q314 as output fell 0.3% q-o-q and 3.4% y-o-y. However, the downturn was less acute in the petrochemicals and polymers segments. Petrochemicals and derivatives...
Pharmaceuticals & Healthcare
Germany Pharmaceuticals & Healthcare
BMI View: While Germany remains a very attractive market for drugmakers, recent regulatory developments intended to reduce healthcare spending will intensify already fierce competition amongst drugmakers, resulting in constrained revenues for less efficient innovators. While recent changes to the reimbursement regime are forecast to bring down retail prices, an ageing population will continue to demand rising volumes of innovative prescription medicines. Additionally, cost-containment initiatives will be moderated by a desire to sustain innovation within an industry key to Germany's positive balance of trade and international standing .
Headline Expenditure Projections
Pharmaceuticals: Down from EUR40.02bn (USD52.8bn...
BMI View: Germany has moved to slow the pace and constrain the cost of the Energiewende but remains dedicated to its green energy transition. In spite of the economic costs and threats to industrial competitiveness, the country is committed to strong growth in renewables capacity. This will drive radical changes to the traditional utility model - as evidenced by E.ON decision to spin off its fossil fuel business.
Although reform of the Renewable Energy Sources Act (EEG) may slow the pace of renewables expansion so as to reduce the costs associated with the Energiewende (energy transition), we emphasise that there is little to indicate any major change in...
Germany Real Estate
BMI View: Germany boasts one of the most developed and investor-friendly commercial real estate markets in the European Union, with a dynamic export sector and strong consumer environment supporting steady growth in rental rates in the post economic-downturn era. However, we see slowing GDP taking some of the momentum out of the market with rental rate growth likely to be moderate over the coming year.
Germany's commercial real estate sector has retained something of a 'safe haven' status over recent years as a strong internal and external demand environment have supported continued growth in rental rates and investment flows. 2013 saw Germany record its highest level of commercial real estate transactional activity since 2007, with investment flows directed primarily towards the office market. ...
BMI View: Our outlook for the German renewables industry remains buoyant this quarter and we expect the country to register sustained robust growth levels across our 10-year forecast period, in line with the government's ambitious green energy policy. Germany's position as the dominant renewables bellwether in Europe - and the wider global renewables space - is cemented in place.
German's renewables expansion has been undeniably successful in terms of capacity growth over the last three years and the contribution renewables generation makes to the country's electricity mix. Focusing primarily on wind and solar power, the country has firmly established itself as the European bellwether for green energy. The government has established a target for electricity generation from renewable sources, aiming to expand renewables so that they contribute 35% to total electricity generation in the country...
BMI View : Consolidation is driving the German telecommunications market as operators strive to reinvent themselves as full converged service providers. O2 has finalised its merger with E-Plus and Vodafone has gained control of Kabel Deutschland Group.Low value voice and messaging services are being superseded by data-centric services as more consumers demand 'everything everywhere' access. The shift of one mobile virtual network operator from low-value prepaid to high-value postpaid plans conveys the story set to play out over the next five years. In fixed-line segment too, competition is rife with operators...
BMI View: Germany's tourism market is well developed and mature, but the coming years still offer sufficient opportunities to make it an attractive proposition to established hotel groups. The coming introduction of the Holiday Inn Express and Premier Inn brands to the country show the belief of major worldwide hotel chains in the potential of the German budget hotel market size, which we anticipate will be an area of growth in the coming years due to falling airline prices encouraging price sensitive travellers to Germany. Due to improving economic conditions of neighbouring countries, government initiatives to encourage Asian Pacific travellers, and decreasing airline prices, we forecast a consistent rise in both inbound and outbound tourism from Germany, as well as a 27% rise...
BMI View: Germany's water industry is highly developed, evidenced through high drinking water and sewage network connection rates, significant investment and strict drinking water criteria. However, in order to become a water powerhouse, Germany must further improve its overall water quality. We see the improvement of water quality as the final hurdle in the advancement of the German water sector.
Over the first half of 2014, the German construction industry has indeed shown signs that it is in the best shape it has been for over a year. ...