2013-01-01 00:17:56 - Germany Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com
Germany´s economic outlook remains clouded by the continued risk of a eurozone break-up, which would lead to an immediate collapse in fixed investment and hit external demand for German exports very hard. Even with this scenario remaining outside of our baseline view, uncertainty over the ongoing eurozone crisis will keep business and consumer confidence levels subdued, thus hurting investment. Germany´s government remains on track to reduce its net borrowing requirements and achieve a balanced budget under the Maastricht criteria by 2014. Low borrowing costs and strict adherence to the constitutionally mandated ´debt brake´ will keep the government´s deficit reduction plan on track.
The formation of a majority government by the Social Democrats and the Greens in Germany´s most populous state of
North Rhine- Westphalia will embolden the opposition nationally, and place Chancellor Angela Merkel and her Christian Democratic Union on the defensive. That said, although we see scope for a considerable shake-up in policy and personnel at party headquarters in Berlin, we do not view the state election as a major threat to the chancellor´s chances in next year´s general election.
Major Forecast Changes
We have raised our 2012 real GDP growth forecast from 0.4% to 0.7% on account of adjustments to our net exports of goods and services projections, as we now expect export growth to outpace import growth. However, we have lowered our 2013 real GDP growth forecast from 2.0% to 1.5% and forecast 1.9% growth in 2014, a downward revision from our previous forecast for 2.1% real GDP growth.
We have raised our trade in goods surplus and, by extension, our current account surplus forecasts for Germany over the coming years on account of downward revisions to goods import growth. We now see the trade in goods surplus climbing to 6.3% of GDP in 2012, up from our previous projection for a 5.6% of GDP surplus. We now see the current account surplus coming in at 5.6% of GDP in 2012, up from our previous forecast of 4.9%.
Key Risks To Outlook
Medium-term risks to growth are weighted to the downside, as a eurozone break-up scenario remains a real risk in light of ever-growing banking sector recapitalisation requirements in Spain and prohibitive government bond yields suggesting that both the Spanish and the Italian governments will struggle to maintain access to international capital markets. In the absence of political cohesion and resolve to address the structural shortcomings of the eurozone, we believe that any short-term measures designed to address the crisis will prove little more than temporary stopgaps, weighing on household and business sentiment and, in turn, placing downside pressure on Germany´s growth outlook.
We note that the biggest risk to Germany´s public finances in the medium term is that the government´s resistance to eurozone bailout measures could end up being far costlier than currently budgeted for. Should eurozone rescue measures suffer as a result of fiscal consolidation in Germany, this could end up being far costlier for the federal government on account of prospective banking sector recapitalisation and possible nationalisation at home.
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