Resilient domestic demand will save the day


LOW RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD3677.439bn (World ranking 4, World Bank 2017)
Population 82.7mn (World ranking 16, World Bank 2017)
Form of state Federal Republic
Head of government Angela MERKEL (Chancellor)
Next elections 2021, legislative
  • Healthy public finances
  • Strong industrial base
  • Low structural unemployment
  • Well-diversified export sector (products and trade partners)
  • Low systemic political risk
  • Aging population
  • Skilled-labor shortage
  • Dependence on exports
  • Dominance of the automobile sector
  • Subdued medium-term growth prospects due to weak investment

Growth momentum to reaccelerate thanks to solid fundamentals

After four consecutive years of strong economic growth above the potential rate, the high-flying German economy experienced a sharp deceleration in 2018. The combination of some key characteristics of Europe’s largest economy – including its export-dependence, high degree of openness, the large share of industry, dominance of the car sector and geographic export concentration (China and the UK account for almost 15% of exports) – proved highly unfavorable in the global environment and saw Germany slip into an industrial recession in the second half of last year. While in early 2019 high-frequency data is still a mixed bag, we think the worst is behind us and that the German economy is close to a turning point.

A v-shaped recovery in the car sector is not in the cards, but there are encouraging signs of stabilization. Production should gradually restart over the coming months as the stock accumulated over the course of 2018 is drawn down. Moreover, the stabilization in global trade as the Chinese stimulus starts to bear fruit should prop up demand for German exports. However, resilient domestic demand in Germany will run the economic show over the coming two years: The labor market trend remains firmly positive and in addition to robust wage growth, higher fiscal spending - including measures to boost spending and reduce taxes and contribution rates to social security funds - should prop up private consumption. The latter well-timed fiscal loosening is expected to add 0.2-0.3pp  to GDP growth annually over the next two years. Thanks to the weak (industrial) start to 2019, we expect the German economy to expand by only 1% this year, with annual growth accelerating to 1.4% in 2020. Nevertheless, downside risks to our forecast loom large, particularly in H1 2019, given the risk of a disorderly Brexit, as well as the threat of US import tariffs levied on car exports from Germany. Moreover, German savers may become less optimistic about the future and could opt to save their additional income rather than spend it.

Positive labor market trend for now unaffected by growth slowdown

German employment growth has remained relatively unaffected by the economy’s near-recession in the second half of 2018. The increase in employment continued at a robust pace in early 2019, with the vast majority of newly created jobs liable to social insurance contributions.  The high and rising number of vacancies suggests that the upward trend in the German labor market will continue in the coming months so the unemployment rate is on course to drop below 5% this year.  

Public finances in stellar shape

In 2018, Germany’s debt-to-GDP ratio fell below the 60% Maastricht criteria for the first time in 17 years after registering at around 80% of GDP as recently as 2012. Along with cyclical tailwinds, including buoyant economic growth and in turn a strong increase in tax receipts, relatively moderate growth in government spending has helped the German government balance its books and achieve a budget surplus since 2014. An important anchor of German public finances has been the introduction of the German debt brake in 2016, which limits the structural budget deficit 0.35% of GDP, and forbids German states to run a deficit at all from 2020 onwards.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 9%
10% China
France 8%
9% Netherlands
United Kingdom 7%
7% France
China 6%
5% Italy

Trade structure by product

(% of total)

Exports Rank Imports
Road vehicles 18%
10% Road vehicles
Electrical machinery, apparatus and appliances, n.e.s. 8%
8% Electrical machinery, apparatus and appliances, n.e.s.
Other industrial machinery and parts 7%
5% Medicinal and pharmaceutical products
Medicinal and pharmaceutical products 6%
4% Petroleum, petroleum products and related materials
Other transport equipment 4%
4% Other industrial machinery and parts

The payment behavior of domestic firms is good and the courts are efficient in delivering timely decisions however, professional pre-legal negotiation efforts remain the most efficient means of collecting debt.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

The purpose of insolvency proceedings in Germany has long been to realize the debtor's assets to repay the creditor's debt. As a result, liquidation has in practice remained the default procedure and the system provides no genuine support to unsecured creditors when it comes to collecting debt from insolvent debtors.

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Collection complexity Germany

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