Germany is the largest economy in Europe and the fourth largest by nominal GDP in the world. Although Germany’s economics ministry decreased the country’s growth forecasts slightly from 1.8% to 1.7% in October, the German economy shows solid growth. 2015 GDP growth forecasts of 1.6% from EY and 1.5% from HSBC research confirm the country’s stable upward trend and the return from a mid-2014 slump.
Lower oil prices, currency depreciation and a robust labour market have acted as a stimulus for better-than-expected domestic consumption. In fact, consumer confidence in the country sits near a 14-year high according to a poll this year by market research company, GfK. Whilst growth isn’t immune from risks such as the challenging market conditions in the single currency zone, analysts expect that the German economy will be propped up by strong consumer demand throughout the rest of the year and into 2016.
Maintaining good form
Although its advantages have been widely debated, the German economy is also benefiting from the European Central Bank’s (ECB) €1.1trn quantitative easing (QE) programme. In April this year – as QE pushed yields on German bonds with a maturity of as long as nine years below zero – the DAX Index closed at a record high.
In 2015, the country achieved its highest ever score from The Heritage Foundation Index of Economic Freedom, making its economy the 16th freest globally. Improvements cited by a corresponding report include marked advances in labour freedom and in policy areas related to market openness. These developments to economic freedom – openness to global trade, freedom from corruption and reliable business environments, for instance – are beneficial to overseas investors. “There is an open and welcoming foreign investment regime in Germany,” says Stephen Price, Country Head of Commercial Banking for HSBC Germany.
In addition, “Germany is in the centre and the heart of Europe. From here you can reach both the eastern and western parts of Europe quite easily,” explains Gabriele Schnell, Head of Payments and Cash Management for HSBC Germany. Its optimal location has traditionally led to Germany being leveraged as a hub for investments and trade logistics. Moreover, its infrastructure, according to Schnell, is “well-developed” and received recognition in IMB World Competitiveness Yearbook 2015, ranking ninth globally.
As such, it is unsurprising that Germany is a major export country. In fact, as Carola von Schmettow, CEO of HSBC Germany, explains, “Germany is one of the top export nations in the world.” However, she continues, “Germany is highly dependent on the global trade environment.” Given that the pace of trade is slowing somewhat globally, how has the country kept its position as a leading exporter?
Deutsche Bundesbank, Germany’s central bank, reported in December 2014 that, as the economy remains in remarkably good shape, German corporates are able to seize opportunities in foreign markets. The country’s Mittelstand (mid-market segment) has looked towards faster growing markets, where average growth rates far exceed those of the Eurozone, explains von Schmettow. For instance, China is now one of the country’s biggest trading partners and Asia is predicted to be Germany’s fastest growing export market over the next 15 years.
Closer to home, almost two thirds of German exports are within Europe. Harmonised standards and guidelines within the EU, free trade and the single currency within the Eurozone are some reasons for this. “The implementation of SEPA – unifying domestic and foreign bank transfers technically and regulatory – has been a major step in the direction of standardisation,” says Schnell. There are no longer restrictions to intra-European payments. What this means is that “one account, for instance in Germany, could be sufficient to settle your transactions across multiple euro countries,” says Schnell. For corporates, the possibility this allows to centralise payment processes is even more attractive than before because of increased transparency and reduced complexity and costs. In addition, the execution time of one working day enables a day-specific scheduling of transactions.
Attraction for multinationals
Germany is also an attractive prospect for foreign corporates looking to expand into Europe. Germany Trade & Invest (GTAI), the economic development agency of the Federal Republic of Germany, reported in April that Germany attracted a record €3.2bn in foreign investment in 2014. The number of new investors reached an all-time high and the number of new projects in Germany rose by a fifth as well as the value of projects. The largest green field investor was China, followed by the US. According to Robert Marsh, Group Treasurer for Matthews International Corporation, a provider of brand solutions and industrial automation solutions, with its headquarters in Pittsburgh, Pennsylvania and several subsidiaries in Germany: “Germany is a gateway to Europe suitable for our international strategy.”
“There is a strong interest in the technological expertise and the research capabilities in Germany as well as the infrastructure and generally reliable, transparent processes,” explains HSBC’s Schnell. All of which, she notes, is appealing to an increasing number of foreign corporates. And, by choosing Germany, overseas corporates are offered “a highly developed legal and political framework that provides a good deal of security,” says Price. The country is arguably a representation of stability in an otherwise volatile environment. Not only does it offer a resilient economy that represents relatively low risk with low inflation and low unemployment, from a workforce point of view, Price adds that Germany’s working population is highly trained, well-educated and committed to IT developments.