Germany’s largest industrial companies are increasingly shaping their strategies based on the competitive threat from Chinese and Indian companies, which they fear could one day take them over, say top chief executives and bankers.
Groups such as Siemens, Volkswagen and BASF are investing billions in these countries and other key markets, such as Russia, to remain internationally competitive and to tap both their stronger growth and the larger number of engineers they produce each year.
But the blue-chips are also acting in the belief that companies from fast-growing countries could soon follow the example of steelmaker Mittal and buy some of Europe’s industrial giants.
“The dominant theme in German boardrooms at the moment is whether a company from one of these countries will one day – say in five or 10 years – be able to take over a big company,” said the head of an investment bank in Frankfurt. “Nobody feels safe – from Eon and Siemens [the two largest companies by market capitalisation] downwards.”
The catalyst for such discussion is the takeover of European steelmaker Arcelor by Mittal, a group largely unknown five years ago whose assets are predominantly in developing countries such as Kazakhstan and Ukraine. “That is the problem,” said another senior German banker. “Nobody is quite sure yet what the name of the aggressor could be but they can see it coming and are trying to do all they can to head it off.”
Eon, the utility, has the largest market capitalisation in Germany with €69bn ($88bn) and is trying to take over Spanish rival Endesa for €55bn including debt, but the German group is dwarfed by Gazprom, the Russian energy group worth more than $200bn. Other groups such as Siemens, MAN and Linde are shedding unprofitable or non-core businesses and buying in areas with better growth.
The head of a large listed German industrial group admitted: “It is definitely possible that a competitor from a developing country could buy us in the future. The most important topic for management right now is to deal with this threat. And the best way to do that is to push the share price as high as possible.”
Franz Fehrenbach, chief executive of Bosch, the privately owned engineering giant, which cannot be taken over owing to its ownership structure, said industrial companies from India and China were becoming more competitive at a daunting pace.
But executives still believe Germany remains attractive and can stay competitive. Mr Fehrenbach said: “We will have to use our strengths to an optimal level but I am still very optimistic.”
Copyright The Financial Times Limited 2006
Monday, August 28, 2006
Thursday, August 24, 2006
German business confidence remains robust (FT)
German business confidence has slipped this month, pointing to an economic slowdown in the months ahead – but no dramatic deceleration after recent robust growth.
The Munich-based Ifo institute’s business climate indicator fell from 105.6 in July to 105.0 this month. That was stronger than expected and German business remained as upbeat as last month about the current business situation. “The German economy is still in a good condition,” said Gebhard Flaig, an Ifo director.
The surprisingly robust Ifo figures came as separate data pointed to a broadening of the country’s economic recovery this year. Details of second-quarter gross domestic product figures showed a 0.9 per cent growth rate – the fastest quarterly rate for five years – was driven by domestic demand. Investment in construction leapt 4.6 per cent and in machinery and equipment by 2.5 per cent.
In contrast, exports – which had originally powered the upswing in Europe’s largest economy – made only a small contribution to growth.
However, private consumption – long the Achilles’ heel of the German economy – fell unexpectedly by 0.4 per cent in the second quarter. That highlighted the continuing nervousness of German consumers, who continue to save heavily. Robert Barrie, economist at Credit Suisse, said private consumption was “the third stage of the rocket” and that the second stage – investment – “is growing very strongly”.
The closely-watched Ifo is regarded as a good indicator of likely future trends in the German economy. Earlier this year, it reached the highest levels for 15 years – foreshadowing the strong second quarter GDP figures. The revival in eurozone growth is expected to result in further interest rate rises by the European Central Bank, with the next increase expected by economists in October.
Thursday’s only modest Ifo index fall followed the plunge in the economic sentiment index published by the Mannheim-based ZEW institute to the lowest level in five year, which had pointed to a marked slowdown. Analysts had been sceptical about the ZEW result, however, which they said largely reflected economists’ fears about the impact of higher VAT rates next year.
Nevertheless, German economic growth is still expected to cool after the surprising robust second quarter. The three percentage point rise in VAT planned by Berlin for the start of 2007 could persuade consumers to bring forward spending into this but result in gross domestic product contracting in the first months of next year, economists believe.
Details of the August Ifo survey showed that expectations about the six months’ ahead deteriorated further, falling to the lowest level since last December.
However the component of the index covering the assessment of current conditions was unchanged at 108.6 – down slightly from June’s figure but otherwise the highest figure since 1991.
Dirk Schumacher, economist at Goldman Sachs, said: “The second quarter probably was the peak in terms of the growth momentum. However, with the labour market looking better each month and the investment boom to continue we should see solid growth in the rest of this year.
Copyright The Financial Times Limited 2006
The Munich-based Ifo institute’s business climate indicator fell from 105.6 in July to 105.0 this month. That was stronger than expected and German business remained as upbeat as last month about the current business situation. “The German economy is still in a good condition,” said Gebhard Flaig, an Ifo director.
The surprisingly robust Ifo figures came as separate data pointed to a broadening of the country’s economic recovery this year. Details of second-quarter gross domestic product figures showed a 0.9 per cent growth rate – the fastest quarterly rate for five years – was driven by domestic demand. Investment in construction leapt 4.6 per cent and in machinery and equipment by 2.5 per cent.
In contrast, exports – which had originally powered the upswing in Europe’s largest economy – made only a small contribution to growth.
However, private consumption – long the Achilles’ heel of the German economy – fell unexpectedly by 0.4 per cent in the second quarter. That highlighted the continuing nervousness of German consumers, who continue to save heavily. Robert Barrie, economist at Credit Suisse, said private consumption was “the third stage of the rocket” and that the second stage – investment – “is growing very strongly”.
The closely-watched Ifo is regarded as a good indicator of likely future trends in the German economy. Earlier this year, it reached the highest levels for 15 years – foreshadowing the strong second quarter GDP figures. The revival in eurozone growth is expected to result in further interest rate rises by the European Central Bank, with the next increase expected by economists in October.
Thursday’s only modest Ifo index fall followed the plunge in the economic sentiment index published by the Mannheim-based ZEW institute to the lowest level in five year, which had pointed to a marked slowdown. Analysts had been sceptical about the ZEW result, however, which they said largely reflected economists’ fears about the impact of higher VAT rates next year.
Nevertheless, German economic growth is still expected to cool after the surprising robust second quarter. The three percentage point rise in VAT planned by Berlin for the start of 2007 could persuade consumers to bring forward spending into this but result in gross domestic product contracting in the first months of next year, economists believe.
Details of the August Ifo survey showed that expectations about the six months’ ahead deteriorated further, falling to the lowest level since last December.
However the component of the index covering the assessment of current conditions was unchanged at 108.6 – down slightly from June’s figure but otherwise the highest figure since 1991.
Dirk Schumacher, economist at Goldman Sachs, said: “The second quarter probably was the peak in terms of the growth momentum. However, with the labour market looking better each month and the investment boom to continue we should see solid growth in the rest of this year.
Copyright The Financial Times Limited 2006
Tuesday, August 22, 2006
Merkel tries to calm party spat (FT)
For insights into the formidable challenge facing Angela Merkel as German chancellor and leader of the Christian Democratic Union, one had only to visit the lobby of Berlin’s Congress Centre on Tuesday.
There, the delegates – employees, entrepreneurs, trade unionists – gathered for the CDU’s programme convention were re-enacting a month-old debate that is threatening her authority within her own party.
At issue is the liberal revolution Ms Merkel, chairman since 2000, triggered three years ago when she weaned her party away from its social brand of conservatism and steered it down a pro-market path.
Given the chancellor’s disappointing election result last year – the vote was a draw and she had to form a “grand coalition” with her rival Social Democrats – and the party’s recent fall in opinion polls, many are asking whether the revolution went too far.
After the Leipzig congress of 2003 that endorsed Ms Merkel’s reformist turn with audacious tax and healthcare reform proposals, “we saw a technocratic drift,” says Ingo Gondro, a delegate from eastern Germany. “We are facing a dispute about our principles and our identity.”
Since Ms Merkel entered the chancellery last November, her most vocal in-house critics have been in the CDU’s pro-business camp, where many think she is not living up to the spirit of Leipzig.
Three weeks ago, however, Jürgen Rüttgers, state premier of North Rhine-Westphalia and deputy CDU leader, opened a second front when he urged his party to shed its “capitalist” image if it was to avoid another debacle at the 2009 election. His supporters want a revision of the Leipzig resolutions.
Since then, both sides have swapped heavy fire, dragging Ms Merkel out of her reserve on Monday, when she rebuffed the leftwingers, painting them as defenders of the status quo in the face of unavoidable change.
Her keynote speech on Tuesday struck a more holistic note. But she made clear conservatism, defined as the preservation of special interests and the refusal to alter the dense network of rules that organises but also cripples the German economy, was a dead-end.
“Justice and solidarity” in the era of cut-throat global competition, she said, could only be achieved through “more freedom and individual responsibilities.”
As the lively discussions at the convention showed, tempers are running high. A panel on economic policy descended into chaos when the audience realised no questions would be allowed. “Leipzig is valid, period,” fumes Günter Schork, a former banker and member of the Hessian parliament.
The CDU platform was last revised in 1994 and the current discussion will stretch over a year. But the dispute is not academic, for the new programme will feed into the next electoral platform and decide which line – pro-business or social – the CDU adopts ahead of the ballot in three years’ time.
“This is hugely important,” says Peter Heesen, chairman of the DBB civil service trade union and long-time CDU member. “This is about the balance between the interests of business and those of the workers (…) We should not forget who gives us our majorities.”
While Mr Rüttgers now leads the leftwing rebellion, such influential figures as Roland Koch, premier of Hesse, stand behind the supply-side reforms. Both camps have large grassroots organisations.
The problem for Ms Merkel lies in her role as head of the grand coalition. Unable to translate her radical reform ideas into policies palatable to her coalition partner, she has acted more as a moderator than a leader, thus testing the patience of the pro-business camp that had backed her before.
Gerhard Schröder, Ms Merkel’s predecessor, angered his own grassroots with tough economic reforms and had to relinquish the SPD’s chairmanship while in the chancellery. Should Ms Merkel fail to complete her revolution, she could find the conflicting demands of her two jobs cannot be reconciled.
Copyright The Financial Times Limited 2006
There, the delegates – employees, entrepreneurs, trade unionists – gathered for the CDU’s programme convention were re-enacting a month-old debate that is threatening her authority within her own party.
At issue is the liberal revolution Ms Merkel, chairman since 2000, triggered three years ago when she weaned her party away from its social brand of conservatism and steered it down a pro-market path.
Given the chancellor’s disappointing election result last year – the vote was a draw and she had to form a “grand coalition” with her rival Social Democrats – and the party’s recent fall in opinion polls, many are asking whether the revolution went too far.
After the Leipzig congress of 2003 that endorsed Ms Merkel’s reformist turn with audacious tax and healthcare reform proposals, “we saw a technocratic drift,” says Ingo Gondro, a delegate from eastern Germany. “We are facing a dispute about our principles and our identity.”
Since Ms Merkel entered the chancellery last November, her most vocal in-house critics have been in the CDU’s pro-business camp, where many think she is not living up to the spirit of Leipzig.
Three weeks ago, however, Jürgen Rüttgers, state premier of North Rhine-Westphalia and deputy CDU leader, opened a second front when he urged his party to shed its “capitalist” image if it was to avoid another debacle at the 2009 election. His supporters want a revision of the Leipzig resolutions.
Since then, both sides have swapped heavy fire, dragging Ms Merkel out of her reserve on Monday, when she rebuffed the leftwingers, painting them as defenders of the status quo in the face of unavoidable change.
Her keynote speech on Tuesday struck a more holistic note. But she made clear conservatism, defined as the preservation of special interests and the refusal to alter the dense network of rules that organises but also cripples the German economy, was a dead-end.
“Justice and solidarity” in the era of cut-throat global competition, she said, could only be achieved through “more freedom and individual responsibilities.”
As the lively discussions at the convention showed, tempers are running high. A panel on economic policy descended into chaos when the audience realised no questions would be allowed. “Leipzig is valid, period,” fumes Günter Schork, a former banker and member of the Hessian parliament.
The CDU platform was last revised in 1994 and the current discussion will stretch over a year. But the dispute is not academic, for the new programme will feed into the next electoral platform and decide which line – pro-business or social – the CDU adopts ahead of the ballot in three years’ time.
“This is hugely important,” says Peter Heesen, chairman of the DBB civil service trade union and long-time CDU member. “This is about the balance between the interests of business and those of the workers (…) We should not forget who gives us our majorities.”
While Mr Rüttgers now leads the leftwing rebellion, such influential figures as Roland Koch, premier of Hesse, stand behind the supply-side reforms. Both camps have large grassroots organisations.
The problem for Ms Merkel lies in her role as head of the grand coalition. Unable to translate her radical reform ideas into policies palatable to her coalition partner, she has acted more as a moderator than a leader, thus testing the patience of the pro-business camp that had backed her before.
Gerhard Schröder, Ms Merkel’s predecessor, angered his own grassroots with tough economic reforms and had to relinquish the SPD’s chairmanship while in the chancellery. Should Ms Merkel fail to complete her revolution, she could find the conflicting demands of her two jobs cannot be reconciled.
Copyright The Financial Times Limited 2006
German confidence plunges to 5-year low (FT)
German investor confidence has plunged this month to its lowest level for five years, suggesting that the recent strength of Europe’s largest economy might soon wane.
The Mannheim-based ZEW economic institute said that the unexpectedly steep decline in its economic sentiment index, by 20.7 points to minus 5.6 points in August, signalled “a considerable economic downturn within the next six months”.
The index has now fallen for seven consecutive months and was last lower in June 2001.
Although the ZEW index is regarded as volatile, its sharp drop removed the euphoria after last week’s gross domestic product figures. They showed the German economy grew faster than the US in the second quarter – and at the highest rate for five years.
The ZEW figures added to fears that Germany will see a significant economic slowdown next year. “Dark clouds will appear on the horizon,” said Wolfgang Franz, the institute’s president.
If confirmed by other data, such as the Munich-based Ifo business climate index released on Thursday, the latest fall may call into question further interest rate increases planned by the European Central Bank.
Prior to the August ZEW data, economists had expected the ECB’s main rate to rise by a further quarter percentage point to 3.25 per cent in October.
Forecasts that German economic fortunes are turning appeared to be supported by details of the survey. While gloom about the outlook in coming months intensified, investors’ assessment of the current economic situation improved this month to the highest level since November 2000. That concern about the future could also be reflected in a further fall in the Ifo index, economists said, extending July’s modest decline.
German investor sentiment in the past few weeks had been hit by fears that a slowing US economy a stronger euro will dampen German exports, ZEW said. There was also concern about corporate tax changes planned by Berlin and the impact on private consumption of high oil prices, and a three percentage point hike in VAT from next year.
Andreas Rees, economist at HVB bank in Munich, said the ZEW was a gauge of likely business conditions six months ahead. “Inevitably the outcome is bleak right now as a double whammy is waiting for Germany at the beginning of next year. Besides the VAT hike, which will dent consumers’ purchasing power, the US slowdown will weight on companies’ export performance.” However, he thought a recession was unlikely.
Julian Callow, economist at Barclays Capital, added: “It will be hard for the ECB to be raising rates on October 5 if the next two monthly rounds of business confidence data have shown some significant deterioration – the ECB’s tendency, when confronted with such developments, has tended to be to pause and await further news.”
Copyright The Financial Times Limited 2006
The Mannheim-based ZEW economic institute said that the unexpectedly steep decline in its economic sentiment index, by 20.7 points to minus 5.6 points in August, signalled “a considerable economic downturn within the next six months”.
The index has now fallen for seven consecutive months and was last lower in June 2001.
Although the ZEW index is regarded as volatile, its sharp drop removed the euphoria after last week’s gross domestic product figures. They showed the German economy grew faster than the US in the second quarter – and at the highest rate for five years.
The ZEW figures added to fears that Germany will see a significant economic slowdown next year. “Dark clouds will appear on the horizon,” said Wolfgang Franz, the institute’s president.
If confirmed by other data, such as the Munich-based Ifo business climate index released on Thursday, the latest fall may call into question further interest rate increases planned by the European Central Bank.
Prior to the August ZEW data, economists had expected the ECB’s main rate to rise by a further quarter percentage point to 3.25 per cent in October.
Forecasts that German economic fortunes are turning appeared to be supported by details of the survey. While gloom about the outlook in coming months intensified, investors’ assessment of the current economic situation improved this month to the highest level since November 2000. That concern about the future could also be reflected in a further fall in the Ifo index, economists said, extending July’s modest decline.
German investor sentiment in the past few weeks had been hit by fears that a slowing US economy a stronger euro will dampen German exports, ZEW said. There was also concern about corporate tax changes planned by Berlin and the impact on private consumption of high oil prices, and a three percentage point hike in VAT from next year.
Andreas Rees, economist at HVB bank in Munich, said the ZEW was a gauge of likely business conditions six months ahead. “Inevitably the outcome is bleak right now as a double whammy is waiting for Germany at the beginning of next year. Besides the VAT hike, which will dent consumers’ purchasing power, the US slowdown will weight on companies’ export performance.” However, he thought a recession was unlikely.
Julian Callow, economist at Barclays Capital, added: “It will be hard for the ECB to be raising rates on October 5 if the next two monthly rounds of business confidence data have shown some significant deterioration – the ECB’s tendency, when confronted with such developments, has tended to be to pause and await further news.”
Copyright The Financial Times Limited 2006
Monday, August 21, 2006
Merkel rules out shift to the left (FT)
Merkel rules out shift to the left
Angela Merkel, the German chancellor, crushed calls on Monday from her Christian Democratic Union for a leftward turn in the party’s economic policies as it seeks to counter its flagging popularity.
The comments broke three weeks’ silence by the chancellor after an acrimonious debate between partisans and opponents of pro-market reforms and liberalisation in the party she chairs.
“The biggest lie of all would be to say that (Germany) needs no – or only very limited – changes,” she told her first press conference since returning from holiday last week. “Change is necessary because the world is changing...And my feeling is that we need more rather than less freedom.”
Nine months after her election as head of a “grand coalition” of Christian and Social Democrats, the debate has revived a painful dispute within the CDU about the chancellor’s poor electoral showing last year and her policy decisions since.
CDU traditionalists, who blamed Ms Merkel’s election result on her reform-oriented campaign, now want the party to return to its social roots. The pro-market camp sees the chancellor’s failure to implement her economic ideas as the main factor behind the party’s plunging ratings.
A poll published last week by the Forsa research group showed 31 per cent approval for the CDU; a 14-point fall since the beginning of the year. With favourable opinions of only 37 per cent, Ms Merkel is now as unpopular as US president George W Bush at home.
The chancellor’s comment on Monday alluded to a recent interview by Jürgen Rüttgers in which the state premier of North Rhine-Westphalia and one of the CDU’s four deputy chairmen called on the party to shed its “capitalist” image. He said the belief that “tax cuts led to more investment and jobs” was a “lie”.
Since then, several senior CDU politicians have urged the party to revisit the resolutions reached at its 2003 congress in Leipzig.
With its innovative tax and healthcare proposals, the congress led by Ms Merkel marked a cultural turning point from socially conscious conservatism towards economic liberalism.
Karl-Josef Laumann, a prominent CDU traditionalist, called for a “general revision of the Leipzig conclusions” this week, saying: “I believe we would not reach the same resolutions again today because the framework has changed.”
Ms Merkel, however, made clear the CDU’s pro-market turn was irreversible. “Leipzig was a decisive milestone for the CDU,” she said.
The debate will reach its climax on Tuesday , as the party meets in Berlin to discuss a revision of its political platform, the first such revision since 1994.
Among other topics, the three-day congress will tackle that of the economy today.
She suggested a relaxation of job protection laws clinched with the SPD last year – the extension from six to 24 months of the trial period during which employees can be dismissed without compensation – may not happen. “The question there is whether it brings us any further or not. If not, it may be that sticking with the status quo is the best option.”
Copyright The Financial Times Limited 2006
Angela Merkel, the German chancellor, crushed calls on Monday from her Christian Democratic Union for a leftward turn in the party’s economic policies as it seeks to counter its flagging popularity.
The comments broke three weeks’ silence by the chancellor after an acrimonious debate between partisans and opponents of pro-market reforms and liberalisation in the party she chairs.
“The biggest lie of all would be to say that (Germany) needs no – or only very limited – changes,” she told her first press conference since returning from holiday last week. “Change is necessary because the world is changing...And my feeling is that we need more rather than less freedom.”
Nine months after her election as head of a “grand coalition” of Christian and Social Democrats, the debate has revived a painful dispute within the CDU about the chancellor’s poor electoral showing last year and her policy decisions since.
CDU traditionalists, who blamed Ms Merkel’s election result on her reform-oriented campaign, now want the party to return to its social roots. The pro-market camp sees the chancellor’s failure to implement her economic ideas as the main factor behind the party’s plunging ratings.
A poll published last week by the Forsa research group showed 31 per cent approval for the CDU; a 14-point fall since the beginning of the year. With favourable opinions of only 37 per cent, Ms Merkel is now as unpopular as US president George W Bush at home.
The chancellor’s comment on Monday alluded to a recent interview by Jürgen Rüttgers in which the state premier of North Rhine-Westphalia and one of the CDU’s four deputy chairmen called on the party to shed its “capitalist” image. He said the belief that “tax cuts led to more investment and jobs” was a “lie”.
Since then, several senior CDU politicians have urged the party to revisit the resolutions reached at its 2003 congress in Leipzig.
With its innovative tax and healthcare proposals, the congress led by Ms Merkel marked a cultural turning point from socially conscious conservatism towards economic liberalism.
Karl-Josef Laumann, a prominent CDU traditionalist, called for a “general revision of the Leipzig conclusions” this week, saying: “I believe we would not reach the same resolutions again today because the framework has changed.”
Ms Merkel, however, made clear the CDU’s pro-market turn was irreversible. “Leipzig was a decisive milestone for the CDU,” she said.
The debate will reach its climax on Tuesday , as the party meets in Berlin to discuss a revision of its political platform, the first such revision since 1994.
Among other topics, the three-day congress will tackle that of the economy today.
She suggested a relaxation of job protection laws clinched with the SPD last year – the extension from six to 24 months of the trial period during which employees can be dismissed without compensation – may not happen. “The question there is whether it brings us any further or not. If not, it may be that sticking with the status quo is the best option.”
Copyright The Financial Times Limited 2006
Sunday, August 20, 2006
German building sector pulls out of recession (FT)
Germany’s construction sector has emerged from a decade-long slump and no longer acts as a brake on economic growth in Europe’s largest economy, according to economists and companies in the sector.
Although hardly a boom, the bottom of the market has been reached, says Hans-Peter Keitel, chief executive of Hochtief, the country’s largest builder. “After almost 10 years of continual recession in the construction sector it is a highly important development: the market is moving upwards, even if it is in small steps . . . If this development can continue, then construction can resume its traditional role as the motor of the German economy.”
The upturn in construction investment this year was cited by the federal statistics office earlier this week as a main reason behind a 0.9 per cent jump in German gross domestic product in the second quarter – the country’s fastest quarterly growth rate for five years. Domestic construction has been in the doldrums since the mid-1990s after a post-reunification boom that significantly overestimated demand for buildings.
Since then, the sector has lost 40 per cent of its revenues and half of its workforce but there are still broadly the same number of construction companies – 75,000 with only 6,000 employing more than 20 workers – meaning profitability is often elusive.
The biggest and most successful builders such as Hochtief and Bilfinger Berger generate most of their growth abroad.
“There is a huge atomisation in the sector and this leads to ruinous competition,” says Heiko Stiepelmann, deputy director of the HDB construction industry association. “But we are very positive because finally revenues have stabilised and we are thinking of lifting our forecast of 1 per cent growth this year.”
Construction order figures for June out later this month are expected to confirm a turnround since the middle of last year; May’s showed a jump of almost 12 per cent compared with the same month a year before.
Even if construction activity remained at the current level, that would be “good news” for Germany, says Dirk Schumacher, economist at Goldman Sachs in Frankfurt. “It would no longer be acting as a drag on growth.” The recession in German construction slashed GDP by more than 1 per cent in the five years to 2005, he calculates. In contrast, Spain’s booming construction sector increased GDP by 5.4 per cent over the same period.
The recent strength partly reflects a rebound after a bitter winter, which halted building work. Other exceptional factors may have been at work.
In stark contrast with the rest of the world, German house prices have hardly moved for a decade, though large-scale investments by private equity firms in housing have boosted hopes of a revival. Instead, the imminent abolition of private housebuilding subsidies for construction could have boosted orders last year; a planned three-percentage point rise in value added tax next year might have brought forward construction activity into 2006.
Public sector spending on construction appears to have recovered – but perhaps only because the pressures on finances are not as severe as in recent years. Infrastructure projects will remain vulnerable to the fiscal squeeze. However, the pick-up in business spending on construction almost certainly reflects the revived underlying strength of the German economy.
“The pick-up in housing and to a certain extent in public sector construction may reflect special, one-off factors. But businesses have invested in new premises to house the machinery they need for additional production – and that is a real sign of an economic upturn,” says Jörg Krämer, economist at Commerzbank.
“Construction will be one of the main drivers of Germany for the next few quarters,” says Mr Schumacher at Goldman Sachs. “But how sustainable is it? There are quite a lot of questions about 2007 and 2008.”
Mr Stiepelmann says a previous upturn in 2000 burned out almost as soon as it was noticed: “It was like a straw fire.” He is more optimistic this time but adds: “When you have lived through 10 years of ever- decreasing numbers, you are just thankful when the trend ends.”
Copyright The Financial Times Limited 2006
Although hardly a boom, the bottom of the market has been reached, says Hans-Peter Keitel, chief executive of Hochtief, the country’s largest builder. “After almost 10 years of continual recession in the construction sector it is a highly important development: the market is moving upwards, even if it is in small steps . . . If this development can continue, then construction can resume its traditional role as the motor of the German economy.”
The upturn in construction investment this year was cited by the federal statistics office earlier this week as a main reason behind a 0.9 per cent jump in German gross domestic product in the second quarter – the country’s fastest quarterly growth rate for five years. Domestic construction has been in the doldrums since the mid-1990s after a post-reunification boom that significantly overestimated demand for buildings.
Since then, the sector has lost 40 per cent of its revenues and half of its workforce but there are still broadly the same number of construction companies – 75,000 with only 6,000 employing more than 20 workers – meaning profitability is often elusive.
The biggest and most successful builders such as Hochtief and Bilfinger Berger generate most of their growth abroad.
“There is a huge atomisation in the sector and this leads to ruinous competition,” says Heiko Stiepelmann, deputy director of the HDB construction industry association. “But we are very positive because finally revenues have stabilised and we are thinking of lifting our forecast of 1 per cent growth this year.”
Construction order figures for June out later this month are expected to confirm a turnround since the middle of last year; May’s showed a jump of almost 12 per cent compared with the same month a year before.
Even if construction activity remained at the current level, that would be “good news” for Germany, says Dirk Schumacher, economist at Goldman Sachs in Frankfurt. “It would no longer be acting as a drag on growth.” The recession in German construction slashed GDP by more than 1 per cent in the five years to 2005, he calculates. In contrast, Spain’s booming construction sector increased GDP by 5.4 per cent over the same period.
The recent strength partly reflects a rebound after a bitter winter, which halted building work. Other exceptional factors may have been at work.
In stark contrast with the rest of the world, German house prices have hardly moved for a decade, though large-scale investments by private equity firms in housing have boosted hopes of a revival. Instead, the imminent abolition of private housebuilding subsidies for construction could have boosted orders last year; a planned three-percentage point rise in value added tax next year might have brought forward construction activity into 2006.
Public sector spending on construction appears to have recovered – but perhaps only because the pressures on finances are not as severe as in recent years. Infrastructure projects will remain vulnerable to the fiscal squeeze. However, the pick-up in business spending on construction almost certainly reflects the revived underlying strength of the German economy.
“The pick-up in housing and to a certain extent in public sector construction may reflect special, one-off factors. But businesses have invested in new premises to house the machinery they need for additional production – and that is a real sign of an economic upturn,” says Jörg Krämer, economist at Commerzbank.
“Construction will be one of the main drivers of Germany for the next few quarters,” says Mr Schumacher at Goldman Sachs. “But how sustainable is it? There are quite a lot of questions about 2007 and 2008.”
Mr Stiepelmann says a previous upturn in 2000 burned out almost as soon as it was noticed: “It was like a straw fire.” He is more optimistic this time but adds: “When you have lived through 10 years of ever- decreasing numbers, you are just thankful when the trend ends.”
Copyright The Financial Times Limited 2006
Friday, August 18, 2006
Peeling away Grass's morality (FT)
Peeling away Grass’s morality
By Christopher Caldwell
Published: August 18 2006 19:26 Last updated: August 18 2006 19:26
The new autobiography by the novelist Günter Grass, Peeling Onions*, has subjected Germans to a week of media uproar. On the eve of publication, Mr Grass revealed to the Frankfurter Allgemeine Zeitung that he served, in the last months of the second world war, in the Waffen-SS. The black-uniformed SS started as Adolf Hitler’s personal bodyguard. As it grew, it was given responsibility for running the Nazi death camps. It also spawned an elite combat unit, into which Mr Grass was drafted. The Waffen-SS was not the part of the SS most implicated in crimes against humanity and Mr Grass says he never fired a shot while he served.
But Mr Grass is often seen, at home and abroad, as the “conscience” of his nation. His revelation – and the realisation that, for six decades, he gave a false account of his role under the Nazis – has thrown Germans into moral disarray. Some applaud his courage, while others suggest he should give back the Nobel Prize he won in 1999. The novelist Martin Walser has leapt to Mr Grass’s defence, while the historian Joachim Fest assails him for hypocrisy. Charlotte Knoblauch, president of the Central Council of Jews in Berlin, suspects a publicity stunt. Mr Grass is laying into his critics, accusing them of trying to make him into a “non-person”.
Why this upsets people so much has to do with the way Mr Grass played his role as official conscience. First, he was pitiless. It is true that, until last week, Mr Grass had seemed not to spare himself. He has always admitted that he was enchanted by Nazism as a teenager, joined the Hitler Youth and was a true believer until the war’s end. “As a child, I witnessed how all this happened in broad daylight,” he said in the FAZ interview. “And, in fact, with enthusiasm and encouragement.” But minimising things by putting them into context was not always Grass’s signature approach. He specialised, rather, in moral keelhauling, dragging Germans over the sharpest barnacles of their past.
Second, he was a political partisan. He campaigned for the centre-left Social Democrats and opposed German reunification. Even in his FAZ interview, he attacked the Christian Democrats who built up the post-war German constitutional order. (“We had [the chancellor Konrad] Adenauer – horrible! – with all the lies, all that Catholic stuffiness.”) Never was his engagement more pointed than in 1985, when he assailed Helmut Kohl, then chancellor, for meeting Ronald Reagan, then US president, in Bitburg, at the grave site of soldiers who had – like Mr Grass himself, it turns out – fought with the Waffen-SS.
For decades, those born in the late 1920s – Mr Grass, Mr Walser, Mr Fest, the poet Hans-Magnus Enzensberger, the philosopher Jürgen Habermas and others – have set the moral tone in Germany. Only recently have younger Germans begun to ask when they will get a say. Two novelists, Eva Menasse and Michael Kumpfmüller, complained in the Süddeutsche Zeitung this week that the Grass affair resembled a “class reunion of old German intellectuals” and that more ink had been spilt on it in three days than over Israel’s month-long struggle against Hizbollah. “No more confessions, please,” they wrote. “Is there nothing else to talk about? Where are the voices on current questions of politics and morals? It is high time for this country to free itself from the self-absorption of its onion-peeling Nazi discourse, and for turning our gaze away from our own navels and towards the world.”
Certainly, this is a different debate from the one that would have taken place 10 years ago. Mr Grass has outlived the era in which his country’s misdeeds were the primary focus of western public morality. But since these crimes have been addressed on terms partly set by Mr Grass, the question of where his moral authority came from is important. Why, among ex-Nazis, was he considered reliable, while others lived under a permanent cloud? Did he understand the war better? Had he performed a particularly thorough penance? (“Certainly, I believed that I had done enough with the writing I had done,” he said last week.) Or was he merely a member of an “in” crowd that had monopolised Germany’s self-understanding?
Siegen macht dumm Mr Grass has often said – winning makes you stupid. Military defeat, he thinks, has allowed Germans to face up to more of their past sins than the English, the French, the Dutch or the Belgians did after colonialism. But might not the same formula be applied to the intellectual left in post-war Europe? There has never been a battlefield rout more complete, nor a peace more Carthaginian, than that of “progressive” intellectuals over “conservative” ones in the past half century.
Mr Grass’s occasionally ferocious anti-Americanism, for instance, may stem from some post-war discovery, like his exposure to segregation in Bad Aibling in 1945. Last week, he recalled how in American camps the whites called the blacks “nigger” and kept them in segregated barracks. But it is not impossible that intellectual victory has led Mr Grass to miss something and that his anti-Americanism draws its inspiration from older sources.
The political scientist Claus Leggewie has observed that the builders of post-war German democracy were often “not shining heroes with spotless careers but people with dubious biographies”. They had something to prove. In Die Tageszeitung last week, Mr Leggewie described Mr Grass’s decades of judgmentalism as “a form of overcompensation”. If Mr Leggewie is right, then Germany is now debating a basic and troubling question about what political opinions are in the first place – whether they arise from looking at the world and reasoning about what is right, or from looking into one’s heart and taking a stand against what is most dangerously wrong.
*Beim Häuten der Zwiebel, Göttingen (Steidl Verlag)
The writer is a senior editor at The Weekly Standard
Copyright The Financial Times Limited 2006
By Christopher Caldwell
Published: August 18 2006 19:26 Last updated: August 18 2006 19:26
The new autobiography by the novelist Günter Grass, Peeling Onions*, has subjected Germans to a week of media uproar. On the eve of publication, Mr Grass revealed to the Frankfurter Allgemeine Zeitung that he served, in the last months of the second world war, in the Waffen-SS. The black-uniformed SS started as Adolf Hitler’s personal bodyguard. As it grew, it was given responsibility for running the Nazi death camps. It also spawned an elite combat unit, into which Mr Grass was drafted. The Waffen-SS was not the part of the SS most implicated in crimes against humanity and Mr Grass says he never fired a shot while he served.
But Mr Grass is often seen, at home and abroad, as the “conscience” of his nation. His revelation – and the realisation that, for six decades, he gave a false account of his role under the Nazis – has thrown Germans into moral disarray. Some applaud his courage, while others suggest he should give back the Nobel Prize he won in 1999. The novelist Martin Walser has leapt to Mr Grass’s defence, while the historian Joachim Fest assails him for hypocrisy. Charlotte Knoblauch, president of the Central Council of Jews in Berlin, suspects a publicity stunt. Mr Grass is laying into his critics, accusing them of trying to make him into a “non-person”.
Why this upsets people so much has to do with the way Mr Grass played his role as official conscience. First, he was pitiless. It is true that, until last week, Mr Grass had seemed not to spare himself. He has always admitted that he was enchanted by Nazism as a teenager, joined the Hitler Youth and was a true believer until the war’s end. “As a child, I witnessed how all this happened in broad daylight,” he said in the FAZ interview. “And, in fact, with enthusiasm and encouragement.” But minimising things by putting them into context was not always Grass’s signature approach. He specialised, rather, in moral keelhauling, dragging Germans over the sharpest barnacles of their past.
Second, he was a political partisan. He campaigned for the centre-left Social Democrats and opposed German reunification. Even in his FAZ interview, he attacked the Christian Democrats who built up the post-war German constitutional order. (“We had [the chancellor Konrad] Adenauer – horrible! – with all the lies, all that Catholic stuffiness.”) Never was his engagement more pointed than in 1985, when he assailed Helmut Kohl, then chancellor, for meeting Ronald Reagan, then US president, in Bitburg, at the grave site of soldiers who had – like Mr Grass himself, it turns out – fought with the Waffen-SS.
For decades, those born in the late 1920s – Mr Grass, Mr Walser, Mr Fest, the poet Hans-Magnus Enzensberger, the philosopher Jürgen Habermas and others – have set the moral tone in Germany. Only recently have younger Germans begun to ask when they will get a say. Two novelists, Eva Menasse and Michael Kumpfmüller, complained in the Süddeutsche Zeitung this week that the Grass affair resembled a “class reunion of old German intellectuals” and that more ink had been spilt on it in three days than over Israel’s month-long struggle against Hizbollah. “No more confessions, please,” they wrote. “Is there nothing else to talk about? Where are the voices on current questions of politics and morals? It is high time for this country to free itself from the self-absorption of its onion-peeling Nazi discourse, and for turning our gaze away from our own navels and towards the world.”
Certainly, this is a different debate from the one that would have taken place 10 years ago. Mr Grass has outlived the era in which his country’s misdeeds were the primary focus of western public morality. But since these crimes have been addressed on terms partly set by Mr Grass, the question of where his moral authority came from is important. Why, among ex-Nazis, was he considered reliable, while others lived under a permanent cloud? Did he understand the war better? Had he performed a particularly thorough penance? (“Certainly, I believed that I had done enough with the writing I had done,” he said last week.) Or was he merely a member of an “in” crowd that had monopolised Germany’s self-understanding?
Siegen macht dumm Mr Grass has often said – winning makes you stupid. Military defeat, he thinks, has allowed Germans to face up to more of their past sins than the English, the French, the Dutch or the Belgians did after colonialism. But might not the same formula be applied to the intellectual left in post-war Europe? There has never been a battlefield rout more complete, nor a peace more Carthaginian, than that of “progressive” intellectuals over “conservative” ones in the past half century.
Mr Grass’s occasionally ferocious anti-Americanism, for instance, may stem from some post-war discovery, like his exposure to segregation in Bad Aibling in 1945. Last week, he recalled how in American camps the whites called the blacks “nigger” and kept them in segregated barracks. But it is not impossible that intellectual victory has led Mr Grass to miss something and that his anti-Americanism draws its inspiration from older sources.
The political scientist Claus Leggewie has observed that the builders of post-war German democracy were often “not shining heroes with spotless careers but people with dubious biographies”. They had something to prove. In Die Tageszeitung last week, Mr Leggewie described Mr Grass’s decades of judgmentalism as “a form of overcompensation”. If Mr Leggewie is right, then Germany is now debating a basic and troubling question about what political opinions are in the first place – whether they arise from looking at the world and reasoning about what is right, or from looking into one’s heart and taking a stand against what is most dangerously wrong.
*Beim Häuten der Zwiebel, Göttingen (Steidl Verlag)
The writer is a senior editor at The Weekly Standard
Copyright The Financial Times Limited 2006
Thursday, August 17, 2006
Köhler urges Merkel to take more action on reforms (FT)
Angela Merkel, German chancellor, returned from holiday on Thursday to face renewed pressure not to waiver from economic reforms, as federal president Horst Köhler added his voice to business leaders and economists calling for more determined action.
President Köhler told foreign correspondents in Berlin that the German chancellor should not become complacent simply because of recent positive economic data. German economic growth in the second quarter, at 0.9 per cent, was the highest in five years, and adjusted unemployment, which fell to 4.4m in July, was the lowest since 2004.
Government leaders have been quick to welcome the improvements but Mr Köhler said: “What’s important is that we not only celebrate the good economic news but work to ensure growth becomes lasting and more dynamic. We know that one swallow does not make a summer.”
Although the president – a former head of the International Monetary Fund – has a largely ceremonial job, he comments more regularly than his predecessors on economic issues and in his remarks to the foreign press stressed an especially sensitive point for the chancellor.
He said that while he agreed with the government’s broad reform agenda – focused on budget consolidation plus health and corporate tax reforms – the way the chancellor’s left-right coalition explains its actions to the public was below par.
“One could improve the [coalition’s] communications”, he said, adding that the coalition should “use more examples to make clear how the reforms are paying off”. The comments by the president – a Christian Democrat ally of the chancellor – are awkward for Ms Merkel as they reflect public disquiet with her recent performance.
In an opinion poll this week her ratings among voters as their preferred chancellor fell below the 40 per cent mark for the first time since she took office last November. Her 37 per cent score compared with 55 per cent six months ago.
A complicated package of health sector finance reforms put forward in July was savaged by business and health experts, with complaints from her own supporters that the measures had been poorly presented.
The economic upturn has also pushed the government on to the defensive over its planned 3 percentage point hike in value-added tax next January, with CDU politicians and business executives arguing that the move is no longer necessary. Peer Steinbrück, finance minister, this week ruled out withdrawing the tax increase.
Mr Köhler warned the finance minister that the extra tax revenues from the VAT increase should not mean less enthusiasm for budget savings.
On her part, Ms Merkel sought to play down the negative political mood, arguing that her priorities this autumn were the health and corporate tax reforms, as well as further labour market changes.
Her most immediate challenge is to identify how Germany will contribute to the United Nations peacekeeping force in Lebanon while avoiding scenarios where German troops could be expected to shoot at Israeli soldiers or civilians.
Copyright The Financial Times Limited 2006
President Köhler told foreign correspondents in Berlin that the German chancellor should not become complacent simply because of recent positive economic data. German economic growth in the second quarter, at 0.9 per cent, was the highest in five years, and adjusted unemployment, which fell to 4.4m in July, was the lowest since 2004.
Government leaders have been quick to welcome the improvements but Mr Köhler said: “What’s important is that we not only celebrate the good economic news but work to ensure growth becomes lasting and more dynamic. We know that one swallow does not make a summer.”
Although the president – a former head of the International Monetary Fund – has a largely ceremonial job, he comments more regularly than his predecessors on economic issues and in his remarks to the foreign press stressed an especially sensitive point for the chancellor.
He said that while he agreed with the government’s broad reform agenda – focused on budget consolidation plus health and corporate tax reforms – the way the chancellor’s left-right coalition explains its actions to the public was below par.
“One could improve the [coalition’s] communications”, he said, adding that the coalition should “use more examples to make clear how the reforms are paying off”. The comments by the president – a Christian Democrat ally of the chancellor – are awkward for Ms Merkel as they reflect public disquiet with her recent performance.
In an opinion poll this week her ratings among voters as their preferred chancellor fell below the 40 per cent mark for the first time since she took office last November. Her 37 per cent score compared with 55 per cent six months ago.
A complicated package of health sector finance reforms put forward in July was savaged by business and health experts, with complaints from her own supporters that the measures had been poorly presented.
The economic upturn has also pushed the government on to the defensive over its planned 3 percentage point hike in value-added tax next January, with CDU politicians and business executives arguing that the move is no longer necessary. Peer Steinbrück, finance minister, this week ruled out withdrawing the tax increase.
Mr Köhler warned the finance minister that the extra tax revenues from the VAT increase should not mean less enthusiasm for budget savings.
On her part, Ms Merkel sought to play down the negative political mood, arguing that her priorities this autumn were the health and corporate tax reforms, as well as further labour market changes.
Her most immediate challenge is to identify how Germany will contribute to the United Nations peacekeeping force in Lebanon while avoiding scenarios where German troops could be expected to shoot at Israeli soldiers or civilians.
Copyright The Financial Times Limited 2006
Wednesday, August 16, 2006
Population decline worries Germany (FT)
German statisticians rang the population alarm bells again yesterday, announcing that the country had 65,000 fewer people last December 31 than a year earlier - a statement likely to quicken steps to open the country's doors a little more widely to immigrants.
Germany's population declined to about 82.4mlast year, as deaths (830,000 in 2005) exceeded live births (686,000) by 144,000, oneof the biggest gaps since 1990.
The positive number of new immigrants - 79,000 more people moved to Germany than moved away - was not enough to compensate for the lack of babies.
The new figures coincide with an upsurge in activity in Chancellor Angela Merkel's left-right coalition on the population issue. Hugh Williamson, Berlin
Germany's population declined to about 82.4mlast year, as deaths (830,000 in 2005) exceeded live births (686,000) by 144,000, oneof the biggest gaps since 1990.
The positive number of new immigrants - 79,000 more people moved to Germany than moved away - was not enough to compensate for the lack of babies.
The new figures coincide with an upsurge in activity in Chancellor Angela Merkel's left-right coalition on the population issue. Hugh Williamson, Berlin
Friday, August 11, 2006
Günter Grass im Interview: „Warum ich nach sechzig Jahren mein Schweigen breche“ (FAZ)
11. August 2006
Zum ersten Mal nach mehr als sechzig Jahren spricht Günter Grass über seine Mitgliedschaft in der Waffen-SS. Als Fünfzehnjähriger hatte er sich noch als Hitlerjunge freiwillig zu den U-Booten gemeldet, mit siebzehn wurde Grass einberufen und kam vom Arbeitsdienst zur Division „Frundsberg“, die zur Waffen-SS gehörte. In seinem Erinnerungsbuch „Beim Häuten der Zwiebel“, das im September erscheinen wird, beschreibt Grass seine Kindheit in Danzig, die letzten Kriegswochen als Soldat, in denen er nur mit knapper Not dem Tod entkam, die Kriegsgefangenschaft und die Wirren der ersten Nachkriegszeit.
Zum ersten Mal nach mehr als sechzig Jahren spricht Günter Grass über seine Mitgliedschaft in der Waffen-SS. Als Fünfzehnjähriger hatte er sich noch als Hitlerjunge freiwillig zu den U-Booten gemeldet, mit siebzehn wurde Grass einberufen und kam vom Arbeitsdienst zur Division „Frundsberg“, die zur Waffen-SS gehörte. In seinem Erinnerungsbuch „Beim Häuten der Zwiebel“, das im September erscheinen wird, beschreibt Grass seine Kindheit in Danzig, die letzten Kriegswochen als Soldat, in denen er nur mit knapper Not dem Tod entkam, die Kriegsgefangenschaft und die Wirren der ersten Nachkriegszeit.
Wednesday, August 09, 2006
Germany searches for more investors (FT)
The faltering relationship between German private investors and equities has suffered a further setback with the recent turmoil in global financial markets.
German industrial data point to growth slowdown (FT)
German companies made fewer goods in June than in the month before and ex-ports rose less quickly than imports, indicating that growth in Europe's largest economy may have peaked in the second quarter of the year and could be slowing.
Thursday, August 03, 2006
Merkel ally says capitalist image must go
A senior member of chancellor Angela Merkel's Christian Democratic Union urged the party to shed its "capitalist" image yesterday, underscoring the deteriorating relationship between the German government and business.
"The CDU is not a capitalist party," Jürgen Rüttgers, state premier of North Rhine-Westphalia and one of the party's four deputy chairmen, told Stern weekly: "It is a community of values that is not just rooted in materialism."
"The CDU is not a capitalist party," Jürgen Rüttgers, state premier of North Rhine-Westphalia and one of the party's four deputy chairmen, told Stern weekly: "It is a community of values that is not just rooted in materialism."
Tuesday, August 01, 2006
Sharp drop in German unemployment (FT)
Unemployment in Europe’s largest economy registered its third-sharpest fall since the early 1990s in July, taking economists by surprise as Germany’s economic recovery was finally shaking up its long-depressed labour market.
“The figures are considerably better than expected, and that’s across the board,” said Elga Bartsch, economist at Morgan Stanley, after the Federal Labour Office said on Tuesday seasonally adjusted unemployment had dropped by 84,000 since June to 10.6 per cent of the active population.
The release is the latest in a sustained raft of positive economic news out of Germany, including a 0.8 per cent quarter-on-quarter rise in retail sales for the three months to July, the biggest in two years, as reported by the Federal Statistical Office this week.
While most economists now bank on growth of around 2 per cent this year, Germany will face formidable challenges in 2007, they warn, as reflected in weakening forward-looking confidence surveys.
Topping the list is the threat of a slow-down in the world economy and particularly the US, which would be a major setback for Germany’s export oriented industry.
Other adverse factors include political instability in the Middle-East, rising eurozone interest rates and a massive three-point rise in German value-added tax next January.
“I am bullish for this year. But the big question is about next year,” said Ms Bartsch. “The VAT rise will drag down growth next year, but on its own it will not derail the recovery. The biggest risk of all is the fate of the US economy.”
Concerns about the sustainability of the recovery could account for the remarkable rise in demand for temporary workers, as reported by temping agencies, although companies typically resort to temporary workers in the early phase of a recovery.
The heavy reliance on temporary staff is the most plausible explanation for a discrepancy between the improving job market statistics and corporate restructuring indicators, which show the number of lay-offs announced so far this year exceeding the 2005 figures.
Internationally comparable labour market figures released on Tuesday by the statistical office, which lag behind the Labour Office’s statistics by one month, showed a seasonally adjusted fall month-on-month fall in jobseekers of 60,000 in June and a 7.8 unemployment per cent rate.
The statistical agency also reported robust rises in both employment and vacancy figures in June and a marked improvement in the number of un-subsidised jobs, adding to the positive picture.
However, labour market data have been notoriously difficult to interpret lately because of numerous distortions. An unadjusted 12,000 fall in unemployment for July, the first since the 1970s, suggest the figures may have been boosted by the one-off effect of the football World Cup.
The later start to the German summer holiday season this year could also have affected the figures on the positive side, suggesting a possible correction in August.
■ Separately, Tuesday’s survey of European Purchasing Managers’ Index showed prices manufacturers in the Eurozone pay for raw materials and charge for their products grew fast in July than a month before, suggesting that the European Central Bank will raise rates on Thursday to stem inflation.
The data again highlights mounting price pressure despite the fact that orders booked by the 3,000 companies surveyed grew less strongly last month than the month before that.
The overall PMI slipped to 57.4 points in July from 57.7 in June, though the index remained well above the 50-point-marker to signal continued growth. The input price index rose to 73.5 from 71.5 points and the output price index to 57.3 from 56 points.
This suggests raw-material price rises are driving up manufacturing costs, which businesses are passing to consumers. The ECB is observing “strong vigilance” and economists expect it to raise rates by a quarter-point to 3 percent on Thursday.
Additional reporting by Gerrit Wiesmann in Frankfurt
Copyright The Financial Times Limited 2006
“The figures are considerably better than expected, and that’s across the board,” said Elga Bartsch, economist at Morgan Stanley, after the Federal Labour Office said on Tuesday seasonally adjusted unemployment had dropped by 84,000 since June to 10.6 per cent of the active population.
The release is the latest in a sustained raft of positive economic news out of Germany, including a 0.8 per cent quarter-on-quarter rise in retail sales for the three months to July, the biggest in two years, as reported by the Federal Statistical Office this week.
While most economists now bank on growth of around 2 per cent this year, Germany will face formidable challenges in 2007, they warn, as reflected in weakening forward-looking confidence surveys.
Topping the list is the threat of a slow-down in the world economy and particularly the US, which would be a major setback for Germany’s export oriented industry.
Other adverse factors include political instability in the Middle-East, rising eurozone interest rates and a massive three-point rise in German value-added tax next January.
“I am bullish for this year. But the big question is about next year,” said Ms Bartsch. “The VAT rise will drag down growth next year, but on its own it will not derail the recovery. The biggest risk of all is the fate of the US economy.”
Concerns about the sustainability of the recovery could account for the remarkable rise in demand for temporary workers, as reported by temping agencies, although companies typically resort to temporary workers in the early phase of a recovery.
The heavy reliance on temporary staff is the most plausible explanation for a discrepancy between the improving job market statistics and corporate restructuring indicators, which show the number of lay-offs announced so far this year exceeding the 2005 figures.
Internationally comparable labour market figures released on Tuesday by the statistical office, which lag behind the Labour Office’s statistics by one month, showed a seasonally adjusted fall month-on-month fall in jobseekers of 60,000 in June and a 7.8 unemployment per cent rate.
The statistical agency also reported robust rises in both employment and vacancy figures in June and a marked improvement in the number of un-subsidised jobs, adding to the positive picture.
However, labour market data have been notoriously difficult to interpret lately because of numerous distortions. An unadjusted 12,000 fall in unemployment for July, the first since the 1970s, suggest the figures may have been boosted by the one-off effect of the football World Cup.
The later start to the German summer holiday season this year could also have affected the figures on the positive side, suggesting a possible correction in August.
■ Separately, Tuesday’s survey of European Purchasing Managers’ Index showed prices manufacturers in the Eurozone pay for raw materials and charge for their products grew fast in July than a month before, suggesting that the European Central Bank will raise rates on Thursday to stem inflation.
The data again highlights mounting price pressure despite the fact that orders booked by the 3,000 companies surveyed grew less strongly last month than the month before that.
The overall PMI slipped to 57.4 points in July from 57.7 in June, though the index remained well above the 50-point-marker to signal continued growth. The input price index rose to 73.5 from 71.5 points and the output price index to 57.3 from 56 points.
This suggests raw-material price rises are driving up manufacturing costs, which businesses are passing to consumers. The ECB is observing “strong vigilance” and economists expect it to raise rates by a quarter-point to 3 percent on Thursday.
Additional reporting by Gerrit Wiesmann in Frankfurt
Copyright The Financial Times Limited 2006
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