Investing in Germany
Total Page：16
File Type：pdf, Size：1020Kb
FT SPECIAL REPORT Investing in Germany Wednesday November 16 2016 www.ft.com/reports | @ftreports Inside Coffers are Demographic dilemma The country suffers from having a rapidly ageing population overflowing Page 2 Negative rates add to pressure on banks but optimism Painful restructurings hold key to survival Page 2 is wearing thin Slow progress getting refugees into work Smaller companies have been better at integrating new arrivals Populism and protectionism could derail healthy Page 3 economic progress, reports Stefan Wagstyl Decision to keep ‘dirty’ urope’s biggest urban devel- lowest level since reunification 25 years Typical presides over Germany’s turn at the at BlackRock, the US-based investment opment scheme is under way ago. Many Germans are grumbling understatement: helm of the G20 group of world econo- group, “But I am worried about the energy pays off in the German city of Ham- about the potential costs of 1m newly- Chancellor miesandpreparesfornextyear’sparlia- mediumterm.” RWE’s strategy of hiving burg alongside the busy Elbe arrived refugees but that is not stopping Angela Merkel mentary elections. She is widely Perhaps the most serious challenge is off its green assets looks E river. In place of old ware- themfrombuyingcars,foreignholidays has pointed to expectedtostandforafourthterm. rising populism, which is making itself houses and docks, construction compa- and kitchens. Low interest rates are Germany’s Not everything is plain sailing, how- felt not only in anti-immigration senti- better than Eon’s choice nies are building offices, flats, shops, feeding surges in the housing market in economic ever, even at home. Germany frets ment provoked by the arrival of around Page 4 barsandhotelswhichwillonedayserve big cities such as Berlin and Munich, as strength about Deutsche Bank, its struggling big 1m refugees since early 2015, but also in 12,000residentsand40,000workers. wellasHamburg. Markus Schreiber/AP lender, and has still to see the end of the ‘This is a supportforprotectionism.UlrichGrillo, There have been some setbacks but “Germany is at the moment in a good scandal surrounding carmaker head of the BDI, the German industry Hamburg is ploughing on with its mas- economic position,” chancellor Angela Volkswagen, its largest manufacturer, golden age association, has called for political ter plan. With a growing population and Merkel said last month with typical afteritadmittedcheatingdieselexhaust for German actionagainst“globalisationbashing”. dynamic industries, the city’s economy understatement. “That helps us with emissionstests. Populism has undermined even sup- hasplentyofmomentum. managing[our]problems.”Thegovern- Other problems are lurking for the industry. port for the dominant Ms Merkel. The What is true for Hamburg is true for ment has raised its forecast for growth future, including growing skilled labour But I am rightwing populist Alternative for Ger- Germany. Despite political and eco- ingrossdomesticproductto1.8percent shortages, an ageing population, a many (AfD) party has helped to reduce Entrepreneurs push nomic turmoil in many parts of the for 2016, from 1.7 per cent last year.The creaky transport infrastructure and worried backing for the chancellor’s ruling cen- the boundaries world, Europe’s biggest economy is government’s coffers are overflowing, technological change that could under- about the tre-right CDU/CSU bloc down from 41 Strength in engineering humming. with bumper tax revenues set to gener- mine some of Germany’s competitive per cent in the 2013 election to about 32 Exports are at record levels, while ate a fiscal surplus for the second year advantages. “This is a golden age for medium percentinrecentopinionpolls. could help in internet- domestic consumption is strong with running. German industry,” says Martin Lück, term’ Barring shocks, the CDU/CSU is of-things ventures wages rising and unemployment at its All this assists Ms Merkel as she chiefinvestmentstrategistforGermany Continuedonpage2 Page 4 2 ★ FINANCIALTIMES Wednesday 16 November 2016 Investing in Germany Why wages need to rise — and fast fall even further. The phenomenon of level since Germany began compiling improvements in productivity. Their Incomes Pay has failed German real wages and falling prices was one reason why the thedatain2011. failure to do so since reunification has to rise in step with labour productivity GreatDepressionwassopernicious,and Though the latest figure for wages did given companies an advantage over for- productivity, giving Q4 1991=100 why Japan’s economic troubles have not take into account reasonably gener- eign competitors and may be a factor Productivity 140 provedsointractable. ous pay deals agreed with the metals behind Germany’s healthy current German businesses an (real output per hour) The threat of a vicious spiral of falling and chemicals industry, the broader account surplus: lower wages keep prices and falling wages in the eurozone trend is that pay deals in recent decades export prices down and reduce demand edge over foreign rivals, 130 is serious. Now at 0.5 per cent, inflation have undershot improvements in pro- forimportsthatconsumersmightbuyif reports Claire Jones in the eurozone has consistently under- ductivity. Some experts remain uncon- theywereearningmore. 120 shot the ECB target in recent years, vinced there is a problem. “[Wages] Atthesametime,wagesatthebottom Coffers are arioDraghi,thepresident making it desirable for wages in Ger- haverisenandtheyarerising,andfairly end of the labour market, where bar- of the European Central manytorisefasterinordertooffsetfalls substantially,”saysGregorDornbusch,a gaining by trade unions is less of a fea- Bank, seldom finds his 110 in prices and stagnant wages in less well partner at law firm Baker & McKenzie. ture, have risen at an even slower pace. overflowing views on how to boost the Real wages offpartsoftheeuroarea. “If you look at the agreements between “If you look at the worst paid jobs, such M eurozone’s recovery 100 The case for higher wages in the euro- unions and certain industries, we’re as hairdressers in East Germany, they aligned with those of the Bundesbank, zone’s economy is, Mr Draghi said in more or less at 2.5 to 3 per cent. That’s are not participating in any collective but optimism Germany’slenderinchief. September, “unquestionable”. He muchhigherthaninflation.” bargaining agreements,” says Marcel Bond buying under its quantitative 90 warned that if the environment of low MrDornbuschacknowledgesthatthe Fratzscher, head of the DIW think-tank wears thin easing programme is seen in Berlin and 1991 95 2000 05 10 16 inflation made low wages a permanent after effects of the Agenda 2010 labour in Berlin, who has written on growing Frankfurt, the country’s political and FT graphic Source: Haver Analytics feature of the labour market, it would market and welfare reforms, designed wage inequality. “That’s an important financial capitals, as a bailout of profli- become increasingly difficult for the to get people back into work, may have part of the picture.” A minimum wage, gate southern member states. Negative banktohititsinflationtarget. keptwagesdepressed.Hebelieves,how- introducedthisyear,hashelpedaddress Continuedfrompage1 interest rates are lambasted for penalis- them do their job. The ECB and other That sentiment has been echoed by ever, that the political climate favours theproblem.Originally€8.50anhour,it expected to win the 2017 elections and ing German savers and in some central banks target inflation of below, theBundesbank,whosechiefeconomist payrestraint.“Therearethosewhopre- willriseby4percentinJanuary. lead a new coalition government. “Mer- instances have been blamed for the rise but close to, 2 per cent. The reason why Jens Ulbrich suggested unions should fer Keynesian economics,”he says. “But “The minimum wage has helped 4m kel at risk? Probably not,” says Holger of nationalism. Yet while the German the target is not closer to zero is because callforbetterpaydeals. the image of the ‘Swabian housewife’ people, that’s almost 10 per cent of the Schmieding, strategist at Berenberg economic establishment has objected thatwouldexposeeconomiestotherisk The question of why German wages who prefers to keep the house in good workforce,” says Mr Fratzscher. But he Bank. “She has no obvious rival or suc- fiercely to the ECB’s economic policies, of deflation, or falling prices. While are not rising faster is one of the biggest order is prevailing . in politics at the addsthattheeffectonincomeshasbeen cessor. Even without Merkel, any con- there is one point both sides agree on: cheaper goods and services may sound riddles of the economy.Unemployment moment.” reduced by the government cutting ceivablecoalitioninBerlinwouldbesol- Germanwagesneedtorise—andfast. good in theory, a vicious bout of defla- isclosetoitslowestlevelsincereunifica- Some economists argue that inflation back in-work benefits. There has also idlypro-EUandpro-euro.” Central bankers care about this tion can lead to falling wages and weak tion,yetnegotiateddealssawpayriseby is the wrong measure for setting wages been a lot of avoidance of the minimum That said, the aura of invincibility becausehigherwagegrowthintheeuro- demand as people and companies delay just 0.9 per cent in the second quarter — instead, they suggest, German wages wage, he says, “with workers having to surrounding Ms Merkel has gone and zone’s largest economy would help purchases in the hope that prices will from the previous quarter — the lowest should have