Our eye on a chart - German elections: a game changer for European investments?  

Published on June, 28th 2021Market and research

Stéphanie BIGOU

Portfolio Manager

For Professional Clients in accordance with MIFID

Written on 25th June 2021 by Seeyond

Looking at Capital Goods Investment since 2000, we believe the German general election will be key for the destiny of Europe.

Let’s look at the facts:

  • Now that Republicans and Democrats might have agreed on the infrastructure renewal plan, let's analyze long-term investment dynamics.
  • The gap in capital goods investment between the US and Europe has widened steadily over the period. Germany has invested little or nothing since late 1990s and early 2000s, due to an orthodox monetary policy and a budgetary austerity.
  • Austerity created a shortage of investment. Productivity gains are not explained by competitive production processes but by low wages. This, in turn, reduces German household consumption and increases its dependency on external demand.

What do we think?:

  • Less globalization and more regionalization as a consequence of the health crisis? Major economies have stated they want to reduce dependency on foreign trade and focus on domestic demand. With solid household demand, domestic markets weather economic shocks better and quicker. In this respect, Europe lags behind the US and China. The budgetary constraints must be relaxed and Germany can lead the way.
  • The "Grünen", currently in the lead for the next German general election on September 26th, could bring good news. The Green Party proposes a transition to a social and ecological market economy, with 50 billion euros of annual public investment in climate, industry transformation, education and digital projects. A policy close to that of the Biden administration that would allow Europe to remain a competitive partner for both the US and China. Dream or reality? Answer on September 26th.


Source: Capital Goods Investment - Bloomberg, Seeyond – March 2000 to May 2021 – Monthly

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