“Germany Is In Really Big Trouble”: Perfect Storm Of Terrible Trends Paints “Bleak” Picture As “Distress Is Spreading To Other Sectors”
A confluence of economic stagnation, higher energy prices (due to anti-nuclear idiocy), and the highest corporate distress rates in Europe suggest Deutschland is in for a sharp contraction – a sentiment shared among fund managers, credit traders and crestfallen German executives moping around Davos last month.
The bad news is continuing to pile up. After the economy shrank in the final quarter of last year, downbeat early surveys for 2024 signal there’s little respite ahead.
Demand from borrowers for investment in the likes of machinery, factories and technology has fallen, creating a risk that domestic growth is impeded in the longer term as companies focus on getting through the current struggle. And now there’s growing concern about some lenders’ exposure to the shaky US corporate real estate market.
“Germany is really in trouble,” according to Barings fund manager Brian Mangwiro. “All the big manufacturing economies are slowing but, in Germany, this is compounded by higher energy costs. There are also challenges in the auto sector with competition coming from China.”
Meanwhile, German executives were decidedly in a bad mood at Davos last month – and were of the view that Europe’s largest economy could no longer be counted on for steady growth – and instead faces a period of chaos amid competition in everything from machinery to automobiles.
“The country’s economic outlook remains bleak,” reads the Weil European Distress Index, citing stagnant profitability on top of liquidity pressures.
Germany emerges as the most distressed market in Europe, influenced by several factors such as deteriorating investment metrics, liquidity pressures and stagnant profitability, which have persisted since the beginning of the year. The country’s economic outlook remains bleak, with both its government and the European Commission projecting a 0.4% contraction in its economy for 2024 due to high inflation, elevated energy prices and sluggish international trade.
What’s more, rising interest rates over the past two years have compounded problems – particularly in the property market. On Wednesday, Morgan Stanley analysts told clients to sell senior bonds linked to Deutsche Pfandbriefbank AG due to the lender’s high exposure to the US Commercial Real-Estate market.
