Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

3 Signs the German Economy Is Falling Apart

Economics / Germany Jun 06, 2016 - 03:52 PM GMT

By: John_Mauldin

Economics

Germany is the world’s fourth-largest economy. It is also Europe’s largest economy, and any European economic recovery depends a great deal on Germany’s trajectory. 

Germany is also the third-largest exporter in absolute terms in the G20 and is nearly as dependent on exports as Saudi Arabia and South Korea.  The country, therefore, must export vast amounts to maintain social and political stability.


With global demand weakening since 2008, however, we are seeing a generalized crisis for exporters, which is creating political and social instability in exporting countries like China, Russia, and Saudi Arabia.

One country that has not yet experienced the effects of this crisis is Germany. While other major exporters have been struggling, Germany has actually increased its export levels, so creating a significant vulnerability for itself.

Here are three main indications that the country is heading toward its own inevitable crisis. A crisis that can destabilize Europe and the rest of the world.

German trade patterns have shifted

The economic slowdown in China and the eurozone’s economic malaise led to low export growth rates and, in some cases, declines in German exports to these areas. The weakening global demand for German goods resulted in major shifts in German trade patterns.

German exports to France have grown so slowly since 2008, for example, that France is no longer the top destination for German exports—for the first time since 1961. Not only that, exports to China in 2015 declined by 4%. 

German exporters have sought to make up for decreased demand by boosting exports to other markets, especially the US. Only 7.2% of German exports by value went to the US in 2008. Seven years later, this increased to 9.5 percent. In 2015, German exports to the US rose by 19 percent.

 Return on capital has diminished

The second indication that Germany’s model is eroding is declining returns on capital invested. Some German exporters have experienced only slight declines, but several major companies have undergone significant shifts. 

Volkswagen, Bayer, and BASF all saw their rate of return on invested capital decline over the last two years. Volkswagen enjoyed a rate of return on invested capital of over 13 percent in late 2012. That rate was less than 3 percent by 2015.

Another example is Daimler’s rate of return on sales of its Mercedes-Benz cars: in the first quarter of 2016, it was 7 percent, compared to 9.4 percent the previous year. 

German companies are cutting prices

The third indication of a coming crisis is that German businesses are sacrificing revenues in order to boost exports in the short term. Producer prices in the eurozone are declining, according to the European Commission.

In January, producer prices fell 3 percent at an annual rate, and in February, prices dropped by 4.2 percent. Some German exporters publicly declared that they are cutting prices. 

BMW cut prices for spare parts in China. Volkswagen introduced discounts and interest free loans in China to boost sales. One phenomenon that underscores the challenges facing Germany’s exporters is a divergence between the growth in sales and growth in revenues. 

For example, Daimler’s first quarter sales in 2016 increased by 7 percent compared to the first quarter of 2015, but revenues increased by a mere 2 percent. BMW’s automotive segment unit sales grew by 5.9 percent in the first quarter year over year, but revenue for car sales declined by 0.4 percent. 

While exchange rate effects did negatively impact revenues in the first quarter, a divergence is still noticeable when these figures are adjusted for shifts in exchange rates. 

German exporters, therefore, are facing a significant problem: they are boosting sales but not making much money. This tactic works in the short term but is financially unsustainable in the long run. 

Germany is not yet in crisis, and many German companies are still sporting at least steady returns. However, the earnings reports of some large German companies and Germany’s export data signal that the country has painted itself into a corner with no way out.

Grab the free report Germany's Invisible Crisis and How the World Should See It

Germany is the powerhouse of the EU and the fourth-largest economy in the world. But the truth is, the Germans are facing a profound crisis—and there's no way they can prevent it.

When the storm hits, its effects will be felt in the US and around the globe. Investors worldwide will be left running for cover… But you can get an early warning and be prepared with this special report. Claim your free copy right now!

Important Disclosures

The article 3 Signs the German Economy Is Falling Apart was originally published at mauldineconomics.com.
John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules