Auto breakdown in Germany?
Germany’s car exports have been something of a global economic phenomenon. In 2018 alone, and despite the diesel emissions scandal, four million German-made vehicles were sold to overseas markets, helping to cement the country’s status as the eurozone’s number-one economy. But now, with the switch to electric creating a seismic shift for car makers, the bonanza could well be over. This is a powerful example of environmental and sustainable issues having an impact that is felt at the macro level.
This document and the views expressed in it contain forward-looking assessments, which can be identified by the use of terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “projection”, “estimate”, “intend”, “continue” or “believe”.
These do not constitute investment advice or recommendations to buy or sell investments and you should not place undue reliance on such statements or returns, as actual returns and results could differ materially due to various risks and uncertainties.
US consumers are spending but not on autos
Look over the border to France, however, and the electric car revolution is likely to have far less of an impact. France doesn’t export many cars and what it does make are small and relatively low cost.
In the growth stakes, France has been catching up in recent quarters and Germany’s car-selling challenges could allow it to ultimately move ahead. The pro-business agenda of President Macron is starting to gain traction and, behind the fog of the Yellow Vest movement, important reforms are being made that will make the French labour market more flexible and competitive.
Weekly rioting in Paris may not be the best advertisement for political stability but it has forced Macron to cut taxes and, with a weakened opposition, he is free to push ahead with his major reform programme. Chancellor Merkel, by contrast, faces tensions in her coalition that are hindering fiscal expansion, notably in the much-vaunted ‘Green New Deal’.
Germany has lost its competitive advantage over the rest of the euro bloc
Source: Berenberg, European Commission, 10-Sep-19. Nominal unit labour costs indexed at 2005=100.
Germany’s golden decade began with major reforms in the early 2000s, which improved competitiveness and facilitated a big increase in the labour force. But the price of success has been widespread labour shortages and a rise in wages relative to the rest of the euro bloc, which has eroded and reversed those gains in competitiveness.