DGAP-News: Silvia Quandt&Cie. AG, Merchant&Investment Banking: In between the lines
(firmenpresse) - Silvia Quandt&Cie. AG, Merchant&Investment Banking / Miscellaneous
01.07.2010 16:25
Dissemination of a Corporate News, transmitted by
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Silvia Quandt Research GmbH
Bernhard Eschweiler
eschweiler(at)silviaquandt.de
+49 69 95 92 90 93 51
www.silviaquandt.de
- Germany to perform better in 2011 than widely expected
- A good time to cut back
- G20 lags progress on financial reform
German fundamentals line up for growth
Consensus estimates for German growth in 2010 are being revised up. The
latest example is the Kiel Institute for World Economics (IfW), which
raised its 2010 growth forecast from 1.2% to 2.1%. At the same time,
markets and economists are getting more worried about 2011, fearing that
fiscal tightening in most OECD countries will stall growth. The IfW, for
example, cut its German growth forecast for 2011 from 1.8% to 1.2%.
The Silvia Quandt view was from the beginning of the year that the German
recovery would gather momentum in 2010. If at all, the forecast has to be
slightly trimmed (from 2.6% to 2.4%) because the rebound was delayed by one
quarter. The upward revisions of 2010 consensus forecasts have more to do
with adding up the data than vision. In April, industrial production was
already 3.7% above the first quarter average. Moreover, the surge in
orders suggests that production rose 5% in the second quarter as a whole.
Even if all other sectors stayed flat, which is unlikely, this would imply
real GDP growth of 1.5% (6% annualized). The second-quarter surge is
unlikely to be repeated, but it probably has more legs than widely
expected, thanks to order backlogs and again low inventories.
The big question is what will happen in 2011? Silvia Quandt believes that
fiscal tightening will not derail the recovery in Germany.
- First, the government's consolidation measures for 2011 are small,
worth less than 0.5% of GDP, and may not get fully implemented.
- Second, the ECB will stay accommodative while fiscal policy in Europe
is tightening (especially outside of Germany) and inflation remains
absent.
- Third, the corporate sector has recovered exceptionally well, which is
good news for investments and hiring.
- Fourth, labor market fundamentals have improved much faster, which is
good news for consumption.
- Fifth, prospects for exports remain favorable in 2011, thanks to a
softer Euro and continued strong momentum in Emerging Markets.
Putting it all together, Silvia Quandt calls for 2.1% growth in 2011. This
is a tad lower than the 2.4% growth estimate for 2010, but well above
consensus forecasts, which are currently around 1.6% and likely to move
lower (see also From 2010 into 2011, 1. July 2010).
The economic outlook bodes well for markets. Short-term interest rates
will stay close to zero and long-term government bond yields are likely to
fall further. The Euro will be soft, especially versus emerging market
currencies. Earnings estimates have been revised up, but with the
consensus outlook getting more pessimistic the potential for upside
surprises increases. Against this background and very low bond yields
equities are cheap. The missing link is confidence, which is not helped by
the ongoing Euro area uncertainties. Still, positive growth and earnings
news should help the German stock market.
G20: Good news for fiscal consolidation, .
G20 leaders had a hard time to compete for media attention with the World
Cup. Perhaps, they were too distracted themselves by the games to come up
with anything new. Still, one important message is coming from the
meeting: there is little of substance that the Group of Twenty can agree
on. This has both positive as well as negative implications.
To start with the good news, fiscal policy decisions will be determined by
regional or country needs. The Summit Declaration called it 'growth
friendly fiscal consolidation'. In practical terms, this means Europe, led
by Germany, will go ahead with fiscal consolidation, while the US will take
more time. The battle between Germany and the US in the run-up to the
meeting did not end in a final clash, but was left undecided. Whether the
US can afford delaying fiscal consolidation remains to be seen, but much of
Europe has little choice.
The point of contention was whether Germany should join the belt-tightening
in the rest of Europe or use its stronger position to stimulate demand.
Even if the EUR80 billion austerity package is less draconian than its
headline figures suggest, the German government stuck to its fiscal
consolidation plan. That is good! Yes, Germany's fiscal position is
better than in the rest of Europe, but it is not sustainable either in the
long term (see German fiscal adjustment: cold turkey versus piecemeal, 20.
May 2010). Thus, now is a good time to cut back, especially as growth is
stronger than expected.
. but no news for financial sector reform
On the negative side, the meeting produced no new initiatives to revive the
WTO Doha-Round. All that the leaders could agree on was a statement of
support for bringing the talks to a conclusion. Probably even more
concerning was the lack of more tangible progress on financial sector
reform. G20 leaders could not agree to introduce globally a banking
surcharge or a financial transaction tax. The Summit Declaration repeated
the group's commitment for reforms made at earlier meetings, but added no
new substance. Any material decisions were delayed to the Seoul meeting in
the fall. The only news is that the group aims to implement the new
standards by end-2012.
Whether the failure to introduce a banking surcharge or a transaction tax
on a global basis is a loss is debatable. Their aim is mostly financial to
recoup the cost of bail-outs and political to respond to public resentment.
With no agreement at hand, more governments will seek national solutions.
The US has just passed its own banking reform and the EU is trying to
introduce a Europe-wide transaction tax. In the best-case scenario, these
national or regional measures will create additional revenues and cool
public sentiment. In a worst-case scenario, they will lead to more
location arbitrage and/or higher cost for the users of financial services.
The real loss would be the failure to come up with a better global
regulatory framework. The Basel Committee on Banking Supervision (BCBS)
and the Financial Stability Board (FSB) are working on specific proposals,
but it is not clear whether all G20 countries will support these measures.
Specifically, those countries where banks did relatively well through the
crisis are reluctant to increase capital requirements or introduce
liquidity ratios. Europe, especially Germany, is opposed to the
introduction of a general leverage ratio, as this would hit its banks more
than others. There is also no agreement on how to define systemic
institutions and their resolution in case of insolvency.
The BCBS and the FSB may come up with a concrete plan by fall, but that is
no guaranty that there will be a political agreement. The real
disappointment was the failure of the Toronto Summit to start the political
process needed to build a consensus on the preliminary proposals by the
BCBS and the FSB.But that is hard work and less fun than watching
football.
Disclaimer
This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,
and was first published 1. July 2010, Silvia Quandt Research GmbH,
Grüneburgweg 18, 60322 Frankfurt is responsible for its preparation. German
Regulatory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht
(BaFin), Graurheindorfer Str. 108, 53117 Bonn and Lurgiallee 12, 60439
Frankfurt.
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01.07.2010 16:25 Ad hoc announcement, Financial News and Media Release distributed by DGAP. Medienarchiv atwww.dgap-medientreff.deandwww.dgap.de---------------------------------------------------------------------------
Datum: 01.07.2010 - 16:25 Uhr
Sprache: Deutsch
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