The wheels have come off in Germany

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Business sentiment, orders, manufacturing…the telltale signs of a trend reversal in the German economy are all there: the euro area’s biggest economy is in a downturn.

This might come as news to some observers and we will discuss the primary reasons behind the situation and try to provide answers to the biggest questions raised by the impending downwards revision to German growth forecasts:

– Recession or no recession in the euro area next year?

– Another crisis looming?

– What is the solution?

Mind your Back!

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France is stumbling, Germany weakening, the U.S. wobbling, Brazil is down a match point and J. Bullard has promised us rate hikes by March… the summer is going to be a real barn burner! Will M&A activity be robust enough to continue to fuel investor confidence?

It’s looking like things are getting tight, considering recent economic developments and central banks’ bungled messages. Let’s take a closer look at the most disruptive factors from the week.

– Euro area: if Germany is a locomotive, is France the caboose?

– U.S. growth will not exceed 1.5% this year

– It’s match point in Brazil

– Beware of the impatience of certain central bankers

Wind of change in Germany, and for Weidmann too…

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While encouraging euro area PMIs in March convinced a number of observers that the ECB had made the right decision (i.e. perpetuate the status quo), the statement from the President of the Bundesbank has lent credence to our scenario of additional stimulus…if not immediately, at least in the not-too-distant future. Such a possibility sends a couple of messages: 1- The euro area is far from being in the clear, 2- German growth is losing steam, 3- The ECB will do more but only because the prospect of the euro area are in fact frail.

Germany’s Minimum Wage: A New Deal, But What Kind of New Deal?

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It isn’t easy to get a clear sense of how the introduction of a statutory minimum wage in Germany will play out. From one angle of vision, it should raise household disposable income and at the same time contribute to a much-needed rebalancing in the euro area. From another perspective, such a guaranteed minimum is likely to trigger an upward wage trend that couldn’t happen at a worse time for German manufacturers who are increasingly struggling to keep exports up. Assuming the Social Democratic Party (SPD) membership approves the deal between the coalition partners on December 17, two basic trends should help us determine the relative weights of these factors and grasp the implications of such a move:

  • The extent to which wage increases spread to export industries, which already pay considerably higher wages than the agreed-upon minimum,
  • Whether or not international demand for capital goods will recover. If it doesn’t, Germany will inevitably slip from its position as a leading exporter and will be unable to power the euro area economy.

On both scores, the introduction of a minimum wage will mean radical change in relation to the pre-euro era—not only for Germany, but for the entire currency bloc.

France–Germany: Comparing 20 Years of Economic History

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Une_anglaisLike all crises, the present one provides a fertile breeding ground for dogmatic, cookie-cutter statements and clichés that don’t always square with reality. So perhaps the best way to avoid making disastrous decisions on the momentous issues of today is to take a good, hard look at our past. This view was what prompted us to publish the following series of charts, which sum up twenty years of comparative economic history in France and Germany.

Growth, consumption, employment, real estate, debt, demographics, and foreign trade are the themes we have covered here, in the hope of offering the reader greater insight into the forces at work in the euro area’s two leading economies.