Weekly international investment round up to 29 September 2009
• Mrs Merkel’s re-election lifts euro markets
• Challenges ahead for Europe’s largest economy
If there is one thing the Germans and investment markets do not like it’s uncertainty. Only months after her nation exited its worst recession since the war, Angela Merkel’s re-election is a welcomed continuation in these ever changing times best reflected by Germany’s leading index, the Dax, with an immediate rise of 1.7 per cent, in turn lifting many other Euro weighted indices.
As the world’s largest exporter, Europe’s largest economy and the real muscle behind our shared currency, simply stated; what happens there matters. Keen-eyed investors also seem happy to join-in the post-election celebrations by considering those sectors which are likely to profit under her continued governance such as the German Nuclear Power industry as it is likely that her new coalition will scrap the law to close all of Germany’s nuclear plants by 2021.
Back in April’s article entitled ‘Europe’s Iron Lady’ I put forward my belief that Angela Merkel would become a pivotal person who would ultimately help spark the end of the current economic slump. Following what was regarded by many as Germany’s surprise exit out of recession in the second quarter of this year together with her recent good form at the G20 meeting, last weekend’s election result arguably now places Mrs Merkel in a stronger position than ever before as her previous coalition partners, the centre left Social Democrats, suffered their worst election performance in a generation.
No doubt the German Chancellor’s first goal will be to form a new coalition government before the 20th anniversary of the fall of the Berlin Wall on 9 November and together with members of her own CDU/CSU party she will invite members of the pro-business FDP to join her to tackle the country’s most pressing problems. Top of their collective list will be to finalise Opel’s future. The company has most recently been kept alive by a €1.5 billion short-term government loan while a deal on the car manufacturer’s future is concluded with the eventual outcome affecting some 15,000 German workers.
It is likely that the high spirits and merriment of this latest ‘election volksfest’ will however be short lived as the new German coalition will urgently need to tackle the country’s other pressing problems. Unemployment, which today stands at 8.1 per cent, is projected to grow next year to 10.3 per cent based upon research by the IWH institute, this will then negatively affect consumer spending in Germany by 0.7 per cent. Oktoberfest should therefore be enjoyed as a long, difficult winter can be expected.
Mrs Merkel, Germany’s first woman Chancellor, is likely to further develop her country’s links with Eastern Europe. Last year, German exports to the EU’s 10 eastern states easily surpassed those to the US and for those investors keen on spotting trends and taking advantage of the current difficult economic situation this theme is only likely to continue.
Whilst soaring public debt will dampen dreams of a lower, simplified German taxation system at least a beer can be raised to the re-election as the latest signal of stability, to that alone we can all say Prost!