Germany Country Risk Report Q2 2016
Germany's growth story will remain positive in 2016 and 2017, asthe economy rebalances towards domestic demand.
A robust fiscal position means the country will cope with extra costsarising due to migrant inflows over the coming years.
Germany's current account surplus has peaked. It will graduallyshrink due to softer export growth and accelerating imports.
Support for Chancellor Angela Merkel should stabilise in 2016.
Voters who disagree with her stance on migration have likely alreadyshifted support away from her Christian Democratic Union(CDU-CSU) party.
Major Forecast Changes
We have modestly upgraded our long-term economic growth forecast,by around 0.2 percentage points (pp) a year in 2018-2025.
This reflects migrant arrivals boosting Germany's consumer baseand potential labour force once integrated into the workforce.
We have revised down our forecasts for inflation to average just1.1% in 2016 and 1.4% in 2017, amid an even bigger decline inglobal oil prices than we initially anticipated.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Economy Healthcheck: Rebalancing To Accelerate In 2016
- The strengthening German economy will continue rebalancing towards domestic demand in 2016-2017, amid strong private consumption
- growth and increased government spending on the migrant/refugee crisis.
- TABLE: ECONOMIC DASHBOARD
- GDP By Expenditure Outlook
- TABLE: GDP GROWTH FORECASTS
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- External Trade And Investment Outlook
- Shrinking Surplus A Positive Development
- Germany's current account surplus has peaked. It will gradually shrink due to softer export growth and accelerating imports.
- Outlook On External Position
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- TABLE: TOP FIVE IMPORT SOURCES AND GOODS IMPORTS
- TABLE: TOP FIVE EXPORT DESTINATIONS AND GOODS EXPORTS
- Fiscal Policy And Public Debt Outlook
- Temporary Deficits No Cause For Alarm
- Germany's robust fiscal position means the country will cope with extra costs arising due to migrant inflows over the coming years. It will
- continue to have one of the most attractive debt profiles of any developed world country.
- Structural Fiscal Position
- TABLE: KEY FISCAL DATA
- TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
- Monetary Policy
- Low Inflation Net Positive For Growth
- Inflation will remain weak in Germany in the years ahead. This will boost real wage growth, household disposable incomes, and
- ultimately, Germany's increasingly strong consumer recovery.
- Regional Monetary Policy
- ECB: Underwhelming But Still Substantial Easing
- The European Central Bank (ECB)'s monetary policy easing on December 3 disappointed markets in terms of its depth and breadth.
- However, strengthening economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire, and in
- our view, the easing is still fairly significant despite disappointment on the headline figures. We continue to forecast a weaker euro in
- Chapter 2: 10-Year Forecast
- The German Economy To 2025
- Export Model To Lose Its Shine
- Germany's economic strength is set to fade slightly over the next decade, as productivity gains are harder to come by and an aging
- population translates into slower real GDP growth. Nevertheless, the overall picture will remain one of relative economic stability, as
- increased domestic consumption replaces exports as a key driver of economic activity.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 3: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- 2016: A Better Year For Merkel
- Having weathered an extremely challenging 2015, Chancellor Angela Merkel will cope with any potential threats to her leadership and
- stem declining support for the Christian Democratic Union (CDU) over the coming quarters.
- TABLE: POLITICAL OVERVIEW
- Regional Politics
- What Would The End Of Schengen Mean?
- While the collapse of the passportless Schengen zone would mark a major step backwards for EU integration it would not necessarily
- portend the end of the EU, and could in fact alleviate growing public concerns surrounding security and the impact of mass immigration.
- While cross-border trade, tourism, and the establishment of 'eurodistricts' would be impeded in the short term, the continent's security
- outlook would improve markedly at a period of heightened risk.
- Long-Term Political Outlook
- Difficult Decisions Ahead
- Although it is one of the most stable countries in the world, Germany must make some difficult political choices over the next 10 years.
- Some of these, such as how to deal with a rapidly ageing population, will be hard to address without threatening political stability, while
- others, such as re-defining Germany's role in Europe, could also prove destabilising.
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: DEVELOPED STATES – LABOUR MARKET RISK
- TABLE: DEVELOPED STATES – LOGISTICS RISK
- TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
- TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
- Chapter 5: BMI Global Macro Outlook
- Global Macro Outlook
- Downside Risks Gather Momentum
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
- TABLE: MACROECONOMIC DATA & FORECASTS