Germany is well-positioned to fight recession
Following the development in the third quarter, the German stock market exhibited highly negative figures. However, Germany is in a stronger position than Europe as a whole in relation to fighting the present economic slowdown.
Uncertain. Highly uncertain. This is how economists are describing the economic situation in Europe, and this among other things contributed to sending down in particular German stocks during the third quarter. However, the German market – in particular - is well-positioned to fight recession, says Frederik Engholm-Hansen, senior analyst at Danske Capital.
”The uncertainty is very high and there is a great likelihood that Europe will enter into a recession, and there is only a scant chance that this situation can be avoided. The risk of a German recession is slightly smaller than the risk of a recession in Europe as a whole,” states Frederik Engholm-Hansen.
“Germany is a large exporting country with significant exposure to Asia. Capital goods such as machinery and cars form the basis of the huge German export to e.g. China and other emerging markets. This very position is providing Germany with a stronger position than the other European countries in relation to the current huge economic uncertainty in Europe,” he explains.
Exporting many goods to the rest of the world
”Germany and its closest neighbours are not as dependent on the economic development within Europe as the other European countries - first and foremost because these countries are exporting many goods to the rest of the world. Of course these countries will also be hit hard if the European economy will slow down even more, but it is likely that these countries will tackle yet another downturn better than the Southern European countries,” says Frederik Engholm-Hansen.
He continues: ”the European crisis has become more aggravated due to the fact that the banking sector is seriously negatively affected by the economic situation. Economists are worrying that the crisis will force banks to become reluctant to grant credit and that the crisis thus will become even more severe.”
Growth is financed by banks
”In Europe corporate growth is typically financed by banks. If banks begin to curb lending this may result in a serious halt in growth in Europe," states Frederik Engholm-Hansen.
He points to the fact that markets are awaiting a political solution to the problems – particularly to those related to Greece. As long as the political uncertainty prevails, it will be difficult to re-establish confidence in the markets and thus to kick-start the economy.
