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DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler (deutsch)

Veröffentlicht am 04.05.2012, 09:08
Aktualisiert 04.05.2012, 09:12
Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler

DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking /

Schlagwort(e): Sonstiges

Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the

lines - Bernhard Eschweiler

04.05.2012 / 09:07

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- Which leading indicator will Germany follow: the IFO or the PMI?

- German growth potential likely higher than latest Bundesbank estimate

Mixed economic news and uncertainty over the direction of the Euro zone are

keeping markets volatile. The latest leading economic indicators confirm

the view that the growth base is spreading from the US to much of the rest

of the world. Especially China is showing signs of revival. However,

Europe remains at the tail end and there are no signs that countries in

recession will recover soon. Germany is caught between those developments

and reading the data for direction is not easy. In our judgment, Germany's

strengths outweigh the drags from Europe. This should not only be visible

in better economic performance this year, but a higher growth potential for

the rest of this decade.

Up or down or apples and oranges?

The Euro-area debt crisis has undoubtedly a negative effect on the German

export sector. How much this will pull down the economy, however, is less

clear. Most economists have raised their growth forecasts for this year

and next, but the actual data remains mixed. The contrast is best seen in

the divergence between the two most watched leading indicators, namely the

manu-facturing PMI and the manufacturing part of the IFO index. The IFO

has been on an uptrend since November. The PMI also improved around the

turn of the year, but that gain was more than lost over the last three

months. Moreover, the IFO is in expansionary territory, while the PMI

points to a contraction.

So, which indicator is more reliable? Some argue that the IFO is better

since it has a much larger sample size (7.000 versus the PMI's 1.000).

Indeed, the PMI's bias toward larger companies could explain some of the

difference. Yet the real difference is design. The IFO is a qualitative

survey, which asks companies to evaluate current business conditions and

expectations. The PMI is a quantitative survey, which asks companies about

actual output, orders, inventories, employment and prices. Thus, the

message from the two indicators is that the Euro-area

debt crisis has a negative (quantitative) impact on current activity, but

that this is not spoiling business confidence (qualitative). Companies

feel competitive and profitable and expect the business environment to

improve, which includes a gradual stabilization of the Euro-area debt

crisis. This optimism is also reflected in the continued positive labor

market development, which we believe was not altered by the April rise in

unemployment (see box). Of course, quantitative indicators need to improve

over time for the optimism to last. The necessary growth impetus is more

likely to come from other parts of the world, especially emerging markets,

and less from Europe.

German growth fundamentals have improved

Whether Germany can keep going is crucial for the Euro's chance of

survival. Important is also how strong Germany will grow. Estimating

future growth potentials is an art and not a science. A good starting

point is to look at potential growth in the past. This can be done using

regression techniques or simply looking at trend growth over full business

cycles (peak-to-peak). The latter approach shows that Germany's growth

potential over the last two business cycles was about 1.5%. Before

unification, West Germany's growth potential was well above 2% and then

collapsed after the unification boom, marked by slower capital and labor

deployment. East Germany's growth potential was 3% in the cycle after

unification as labor was replaced by massive capital investments. In the

cycle prior to the financial crisis, East and West German growth potentials

and resource deployment rates converged.

So, where from here? The Bundesbank estimates that the growth potential

will average just 1.25% until the end of the decade (see April monthly

report), due to negative demographic developments. To be sure, aging will

be a significant drag. In our judgment, however, this effect will be more

than offset by strong immigration from other parts of Europe, structural

changes that raise competitiveness and productivity, thus leading to more

capital spending, and the favorable reversal in monetary conditions. As a

result, we believe that the growth potential is closer to 2%.

- According to the Bundesbank's base case scenario, net immigration will

average 200.000 p.a. until 2015 and then decline to 150.000 until the

end of the decade. That implies that net immigration already peaked in

2011/12. The federal statistics office reported net immigration of

135.000 in the first half of 2011 (+122% oya) and first indications

point to a further acceleration in the second half. In our judgment,

this trend will continue. Despite initially low mobility, the

competitiveness gaps between Germany and the Euro-area periphery will

increasingly trigger labor movements somewhat similar to the

adjustments after German unification (see ITL March 8, 2012).

- In the words of the Bundesbank's April monthly report, the success of

Germany's structural reforms was primarily to adjust the labor market

and public finances to a moderate growth environment. We believe the

reforms, including changes at the corporate level, achieved much more.

To see that, it is better to look just at West Germany. In the cycle

prior to the financial crisis, trend growth in West

Germany already reaccelerated. And given that the fruits of the reforms

only started to kick in from the middle of the past decade, it is

reasonable to assume that the growth potential already exceeded 1.5% before

the crisis. Indeed, in its monthly report from October 2007, the

Bundesbank itself raised the growth potential to 1.50-to-1.75%. Besides

corporate and labor market reforms, German exporters made a big structural

shift from stagnating OECD markets to vibrant emerging markets.

- Potential growth is largely about supply-side conditions. However,

demand-side conditions, especially structural policy conditions matter

as well. The cost of unification put Germany into a fiscal straight

jacket for over a decade. More importantly, Germany entered the Euro

with a much overvalued currency and real interest rates well above the

real rate of growth. Today, Germany's real effective exchange rate is

25% lower than 15 years ago and real interest rates are well below the

real growth rate. And that reversal is likely to persist for years.

- Finally, housing is a special case in the potential growth analysis.

In its October 2007 report, the Bundesbank said that housing remains a

drag on potential growth due to the adjustment after the unification

boom. This has clearly changed as supply is falling short of demand

and financial conditions have improved sharply (see ITL March 22,

2012).

Disclaimer

This analysis was prepared by Bernhard Eschweiler, Senior Economic Advisor,

and was first published 4 May 2012, 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.

Publication according to article 5 (4) no. 3 of the German Regulation

concerning the analysis of financial instruments (Finanzanalyseverordnung):

Number of recommendations Thereof recommendations for issuers to which

from Silvia Quandt Research investment banking services were provided

during

GmbH in 2012 the preceding twelve months

Buys: 93 34

Neutral: 51 6

Avoid: 12 0

Company disclosures

Article 34b of the German Securities Trading Act (Wertpapierhandelsgesetz)

in combination with the German regulation concerning the analysis of

financial instruments (Finanzanalyseverordnung) requires an enterprise

preparing a securities analysis to point out possible conflicts of interest

with respect to the company or companies that are the subject of the

analysis. A conflict of interest is presumed to exist, in particular, if an

enterprise preparing a security analysis:

(a) holds more than 5 % of the share capital of the company or companies

analysed;

(b) has lead managed or co-lead managed a public offering of the

securities of the company or companies in the previous 12 months;

(c) has provided investment banking services for the company or companies

analysed during the last 12 months for which a compensation has been or

will be paid;

(d) is serving as a liquidity provider for the company's securities by

issuing buy and sell orders;

(e) is party to an agreement with the company or companies that is the

subject of the analysis relating to the production of the recommendation;

(f) or the analyst covering the issue has other significant financial

interests with respect to the company or companies that are the subject of

this analysis, for example holding a seat on the company's boards.

In this respective analysis the following of the above-mentioned conflicts

of interests exist: none

Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG, and its affiliated

companies regularly hold shares of the analysed company or companies in

their trading portfolios. The views expressed in this analysis reflect the

personal views of the analyst about the subject securities or issuers. No

part of the analyst's compensation was, is or will be directly or

indirectly tied to the specific recommendations or views expressed in this

analysis. It has not been determined in advance whether and at what

intervals this report will be updated.

Equity Recommendation Definitions Silvia Quandt Research GmbH analysts rate

the shares of the companies they cover on an absolute basis using a 6 -

12-month target price. 'Buys' assume an upside of more than 10% from the

current price during the following 6 - 12-months. These securities are

expected to out-perform their respective sector indices. Securities with an

expected negative absolute performance of more than 10% and an

under-performance to their respective sector index are rated 'avoids'.

Securities where the current share price is within a 10% range of the

sector performance are rated 'neutral'. Securities prices used in this

report are closing prices of the day before publication unless a different

date is stated. With regard to unlisted securities median market prices are

used based on various important broker sources (OTC-Market).

Disclaimer This publication has been prepared and published by Silvia

Quandt Research GmbH, a subsidiary of Silvia Quandt & Cie. AG. This

publication is intended solely for distribution to professional and

business customers of Silvia Quandt & Cie. AG. It is not intended to be

distributed to private investors or private customers. Any information in

this report is based on data obtained from publicly available information

and sources considered to be reliable, but no representations or guarantees

are made by Silvia Quandt Research GmbH with regard to the accuracy or

completeness of the data or information contained in this report. The

opinions and estimates contained herein constitute our best judgement at

this date and time, and are subject to change without notice. Prior to this

publication, the analysis has not been communicated to the analysed

companies and changed subsequently. This report is for information purposes

only; it is not intended to be and should not be construed as a

recommendation, offer or solicitation to acquire, or dispose of, any of the

securities mentioned in this report. In compliance with statutory and

regulatory provisions, Silvia Quandt & Cie. AG and Silvia Quandt Research

GmbH have set up effective organisational and administrative arrangements

to prevent and avoid possible conflicts of interests in preparing and

transmitting analyses. These include, in particular, inhouse information

barriers (Chinese walls). These information barriers apply to any

information which is not publicly available and to which any of Silvia

Quandt & Cie. AG and Silvia Quandt Research GmbH or its affiliates may have

access from a business relationship with the issuer. For statutory or

contractual reasons, this information may not be used in an analysis of the

securities and is therefore not included in this report. Silvia Quandt &

Cie. AG and Silvia Quandt Research GmbH, its affiliates and/or clients may

conduct or may have conducted transactions for their own account or for the

account of other parties with respect to the securities mentioned in this

report or related investments before the recipient has received this

report. Silvia Quandt & Cie. AG and Silvia Quandt Research GmbH or its

affiliates, its executives, managers and employees may hold shares or

positions, possibly even short sale positions, in securities mentioned in

this report or in related investments. Silvia Quandt & Cie. AG in

particular may provide banking or other advisory services to interested

parties. Neither Silvia Quandt Research GmbH, Silvia Quandt & Cie. AG or

its affiliates nor any of its officers, shareholders or employees accept

any liability for any direct or consequential loss arising from any use of

this publication or its contents. Copyright and database rights protection

exists in this publication and it may not be reproduced, distributed or

published by any person for any purpose without the prior express consent

of Silvia Quandt Research GmbH. All rights reserved. Any investments

referred to herein may involve significant risk, are not necessarily

available in all jurisdictions, may be illiquid and may not be suitable for

all investors. The value of, or income from, any investments referred to

herein may fluctuate and/or be affected by changes in exchange rates. Past

performance is not indicative of future results. Investors should make

their own investment decisions without relying on this publication. Only

investors with sufficient knowledge and experience in financial matters to

evaluate the merits and risks should consider an investment in any issuer

or market discussed herein and other persons should not take any action on

the basis of this publication.

Specific notices of possible conflicts of interest with respect to issuers

or securities forming the subject of this report according to US or English

law: None

This publication is issued in the United Kingdom only to persons described

in Articles 19, 47 and 49 of the Financial Services and Markets Act 2000

(Financial Promotion) Order 2001 and is not intended to be distributed,

directly or indirectly, to any other class of persons (including private

investors). Neither this publication nor any copy of it may be taken or

transmitted into the United States of America or distributed, directly or

indirectly, in the United States of America.

Frankfurt am Main, 04.05.2012

Silvia Quandt Research GmbH

Grüneburgweg 1860322 Frankfurt

Tel: + 49 69 95 92 90 93 -0

Fax: + 49 69 95 92 90 93 - 11



Ende der Corporate News

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04.05.2012 Veröffentlichung einer Corporate News/Finanznachricht,

übermittelt durch die DGAP - ein Unternehmen der EquityStory AG.

Für den Inhalt der Mitteilung ist der Emittent / Herausgeber

verantwortlich.

Die DGAP Distributionsservices umfassen gesetzliche Meldepflichten,

Corporate News/Finanznachrichten und Pressemitteilungen.

Medienarchiv unter http://www.dgap-medientreff.de und

http://www.dgap.de

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