Germany fears business slowdown


The Euro sculpture stands in front of the European Central Bank in Frankfurt, Germany, on Nov. 16. 2011. (Michael Probst/AP)
August 14, 2012

“More challenging”; “increasingly gloomy prospects”; “reluctance to place orders among customers”: Even as Germany released figures showing the country’s economy growing more than expected in the second quarter, a clutch of German companies was passing judgment on the difficulties in store.

From port operators to engineering groups and manufacturers, the concerns from some businesses announcing second-quarter earnings Tuesday suggest that Europe’s largest economy is set to succumb to the euro-zone debt crisis after months of surprising resilience.

“The business cycle in Germany is at a critical point,” said Allianz, the insurer. “The growth engine is stuttering more and more. . . . The insecurity stemming from the euro-zone debt crisis is leaving more and more traces on the German economy.”

Germany had outstripped other large European Union economies, with low unemployment and a healthy fiscal position boosting consumers’ propensity to spend and the corporate sector living up to its reputation as a global Exportmeister.

Reporting preliminary data showing that German gross domestic product grew 0.3 percent in the second quarter, slowing from the first quarter, the statistics office on Tuesday attributed the figure to positive contributions from consumer spending and export growth that outstripped the rise in imports.

However, an increasing number of companies appear to doubt that order books will stay as robust. They fear that customers are more likely to delay spending decisions as the crisis wears on without resolution. Investment in machinery and equipment in Germany declined in the second quarter, the statistics office said.

Roland Koch, a former premier of the German state of Hesse who now leads Bilfinger Berger, a construction services company, said this month that the market environment was becoming “increasingly nervous.” Consumer reticence was apparent, for example, in requests for longer payment periods on maintenance or repair contracts, Koch told investors.

Another illustration came Tuesday from Bauer, a Bavarian construction and engineering company that has been in business for more than 200 years and, like many German companies, generates about three-quarters of its sales outside Germany. Overall sales and orders rose in the first half of the year, but machinery sales were much weaker than expected, with customers reluctant to place orders. “Markets in Europe and China, especially, are in decline,” Bauer said.

Such judgments seem to bear out fears that Germany will import economic problems because of its reliance on demand from international markets that are slowing or in recession.

Cementing fears over trade, HHLA, which handles two-thirds of containers in Hamburg, one of Europe’s busiest ports, said Tuesday that growth in throughput at its terminals had slowed quarter-on-quarter, and was likely to slow further for the rest of the year.

Exports from Germany should still be buoyed by the relative decline of the euro, making goods more competitive to many international buyers, and plenty of companies remain confident of meeting their expectations for the year. Yet the overall gloomier tone is borne out by sharp declines in recent months in a number of indices that measure economists and industrialists’ expectations.

On Tuesday, a monthly index from Mannheim’s ZEW, or Center for European Economic Research, announced the fourth consecutive fall in expectations, to a much lower level than had been anticipated. “Financial market experts still expect the German economy to cool down throughout the next six months. Especially export-oriented sectors may be affected,” ZEW said.

Concern in Germany will cast a further pall over efforts to revive the wider euro-zone economy, which contracted by 0.2 percent quarter-on-quarter, according to preliminary figures from the European Union. Germany accounts for by far the biggest national slice of total euro-zone output.

German growth has also been helped by unemployment that is much lower than in much of the euro zone, with many companies hungrily trying to recruit skilled staff. But there are signs that the trend of improvement in the jobless figures may have run its course.

Seasonally adjusted unemployment rose by 7,000 in July, following a similar rise in June, and although the number out of work is still 63,000 lower than at the same point last year, the federal employment agency says this gap is “melting away month by month.”

Indeed, in three states including North Rhine-Westphalia, the country’s most populous, unemployment is higher than a year ago.

“Further developments are going to depend a lot on how robust the labor market remains,” Rolf Schneider of Allianz said. “All in all, there are still good chances that the German economy masters the situation and does not end up in a downturn.”

— Financial Times

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