OP 2019: Germany enters recession

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Auf wiedersehen, Mutti! Tariffs on German cars and a lack of digitalisation leaves Germany limping into a recession before the end of 2019. As well, Merkel declines to run for chancellor again, setting up a power struggle in German politics at a time when the country needs stability and a major transformation of Europe’s most powerful economy.

A global leader for decades, Germany is struggling to upgrade its leveraging of modern technology. A 2017 study by the Organisation for Economic Co-operation and Development, for example, ranks Germany 29th out of 34 developed economies for high speed internet!

The crown jewel of the German economy, representing a cool 14% of GDP, is its car industry. The German automotive world, however, is far behind in terms of its conversion to electric vehicles and the use of big data. When Merkel was in China in May, she was so stunned at the country’s production facilities that she asked for Chinese help to speed up German adaption of this critical export commodity. Maybe that’s why German car giants like Volkswagen and Daimler currently trade at a recession-like price-to-earnings ratio of six?

The global car industry was supposed to be a growth juggernaut, registering 100 million cars sold in 2018. In the end, it only managed to unload 81 million cars, a mere 2% more than 2017 and well down from the 5-10% yearly growth rates that characterised the 2000s.

By 2040, 55% of all new global car sales and 33% of the stock will be EVs. But Germany is only just starting the transformation to EV and is y ears behind, and stiffer US tariffs won’t make things any better for German supply chains or exports.

2019 will be the peak of anti-globalisation sentiment and will create a laser-like focus on costs, domestic markets and production, and the further use of big data and reduced pollution footprint – the exact opposite of the trends that have benefitted Germany since the 1980s.

As such, we see a recession arriving as early as Q3’19.