EZA 745 Report:

29 June 2006

Germany – Industry Outlook

Household consumption takes the baton from exports – but for how long? The tri-annual DIHK industry survey presented 12Jun reported a record high in business sentiment, confirming other company surveys like that of the Ifo institute. This rise - the third one in a row - is broadly based across all industries; hinting at the sustainability of the current economic upturn. However, notably among retail and construction sectors, uncertainty remains about the sustainability of the recovery in the context of next year’s fiscal tightening. Heavy industries, notably mechanical and electrical engineering top the growth league of manufacturers, boosted by a rise in investment, which is expected to be the backbone of growth next year.

Asset conclusions: the consumption recovery has not been fully priced into retail stocks, hence limited risk of a setback, if consumption falters next year after the VAT hike.

© Graham Bishop