Results of a survey conducted by the Association of German Chambers of Commerce and Industry (DIHK)

Transcription

1 Results of a survey conducted by the Association of German Chambers of Commerce and Industry (DIHK) 201

2 2 DIHK-Survey Early Summer 2015 The Early Summer 2015 survey, Growth is increasing, euphoria is absent, is the current evaluation that the DIHK has produced out of the results gathered in a business survey carried out through the 80 Chambers of Industry and Commerce (IHK) in Germany. This kind of business survey was published from the fall of 1977 until early summer 2013 under the title THE ECONOMIC SITUATION AND EXPECTATIONS. Until 2000, the report was published bi-annually and since then, three times a year. The DIHK results are based on business surveys carried out by Germany s 80 Chambers of Industry and Commerce (IHK). In each case, the different Chambers of Industry and Commerce submitted the questionnaire to a representative number of their member companies. In Early Summer of 2015, the DIHK again evaluated more than 23,000 responses. The regional business surveys of the 80 Chambers of Industry and Commerce can be accessed at: These responses are divided as follows: 28 percent for industry, seven percent for construction, 22 percent for retail and 43 percent for the service industry. The territory of the Federal Republic of Germany consists of the federal states of Bremen, Hamburg, Lower Saxony and Schleswig-Holstein in the north, Hesse, North-Rhine/Westphalia, Rheinland-Palatinate and Saarland in the west, Berlin, Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt and Thuringia in the east and Baden-Württemberg and Bavaria in the south. The enquiry period was from beginning April until the beginning of May of Association of German Chambers of Industry and Commerce e. V. (DIHK), Department for Economic Policy Berlin 2015

3 DIHK-Survey Early Summer Index Germany at a Glance 04 Economic Situation 07 Economic Expectations 13 Export Expectations 23 Investment Intentions 33 Employment Intentions 39 IHK-Economic-Surveys 45 Questionnaire 46 DIHK-Surveys - time series 47 Imprint 53

4 DIHK-Survey Early Summer 2015 Germany at a Glance Early Summer 2015 Economic Situation Overall, the companies (shares in %) situation assessment has not continued to improve in the early summer of good satisfactory bad Business in the construction industry is running smoothly. The mood in the manufacturing industry is improving thanks to better foreign business and good domestic consumer demand. Increased employment, wage increases, and low prices are creating purchasing power. This is also causing a palpable stimulation of trade. Many service providers are also benefiting from this, although restraining factors are more prevalent in this sector. In the hospitality industry and for personal service providers the situation assessment has now especially worsened. Expectations (shares in %) better about equal worse The companies are increasingly optimistic with regard to the coming months. The business expectations are visibly improving in early summer, most strongly in the construction industry. It is especially profiting from sustained low interest rates. The continued low oil price and the weak exchange rate benefit the manufacturing industry, whose expectations are also increasing. The higher purchasing power stimulates the confidence of the trade branches. Optimism is also on the increase among service providers, but the worsening of several framework conditions inhibits this sector, such as the minimum wage or the increasing bureaucratic requirements

5 DIHK-Survey Early Summer 2015 Export Expecations, Industry (shares in %) higher about equal lower Investment Intentions (shares in %) higher about equal lower The investment intentions are improving in all sectors of the economy. Improved sales outlooks domestically and abroad now make more expansive planning possible. Naturally, this is also due to extraordinary effects such as low interest rates and falling oil prices. The increase in investment plans, however, lags behind the dynamics of business expectations. In the construction industry, building construction is especially planning new capacities. Financing conditions continue to be extremely favorable for companies that want to invest more Exports are gradually gaining momentum. The weakness of the Euro is incentivizing exports to third countries. In addition, the economy in the countries of the Eurozone remains on the path to recovery. These important consumer countries are once more increasingly purchasing German products. The economy in the USA is robust. The development in Russia continues to worry German companies greatly. The expectations of the companies have at least reached rock bottom here. In China, the rapid growth of the past few years can no longer be attained. This will probably result in a lower increase of German exports Employment Intentions (shares in %) higher about equal lower Companies continue to hire. Industry continues to be expansive on the topic of personnel. However, service providers continue to be reluctant which were previously long-time employment powerhouses. Overall, the employment plans are not wholly keeping pace with the development of business expectations. The hiring of additional personnel is hampered by a growing lack of specialists. The risk has reached its highest level since the beginning of the surveys in 2010 in spite of increased wages. In addition to minimum wage, this is a major reason, why the labor cost risk is at an all-time high

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7 Economic Situation

8 8 DIHK-Survey Early Summer 2015 Breather for the moment Overall, the companies situation assessment has not continued to improve in the early summer of Business in the construction industry is running smoothly. The mood in the industry is improving thanks to better foreign business and good domestic consumer demand. Increased employment, wage increases, and low prices are creating purchasing power. This is also causing a palpable stimulation of trade. Many service providers are also benefiting from this, although restraining factors are more prevalent in this sector. In the hospitality industry and for personal service providers the situation assessment has now especially worsened these are sectors, which have been plagued by increasing costs for the past two years, more than the development of demand. Consumption stimulates the economy... exchange rate covering up weaknesses All in all, the situation reports continue to be good. Only nine percent of the companies describe their current business situation as bad, compared with a whopping 41 percent that rate it as good ( satisfactory : 50 percent) the percentages remain the same as those of the previous survey. The business expectations of the companies in the previous survey already had little hope of a palpable improvement of the situation. The growth was especially characterized by consumption. Jobs and wages increased, whereas companies kept prices stable the consumers primarily profit from the stimulus plan Slump in oil prices. The resulting balance of 32 points has therefore remained largely stable at a high level since the beginning of For comparison: the maximum value from the years 2011/12 is not much higher at 37 points, with the average since 2003 being 18 points and that since 1991 just eight points. Although this demonstrates the continuing high level of competitiveness of the German economy, this strength after the rise in labour costs and increasing regulatory and bureaucratic burdens is based above all on the weak euro; anything but a stable long-term basis. Assessment of the Situation (in percent) good satisfactory bad balance Early Summer Fall February Early Summer Fall February Early Summer

9 DIHK-Survey Early Summer Assessment of the Situation - in points Saldo long-time-average = Manufacturing industry can stabilize the upward trend Slight setback among manufacturers of capital goods For the second time in a row, the situation assessments in the manufacturing sector have improved. The reply balance has again climbed by two to its present level of 32 points. Compared to the fall of 2014, the decline in the price of oil and other raw materials on the costs side has lightened the load on the one hand, even providing the end customer at home and abroad with additional purchasing power. On the other hand, the weaker euro has allowed price competitiveness to reach record levels. Due to their higher raw material intensity and greater price elasticity of demand, the manufacturers of intermediate goods and consumer products are benefiting from these factors to a greater extent than the producers of capital goods. Overall, domestic industry is even catching up to a certain extent in the early summer of 2015 compared to the export businesses (balance increase by four to 28 points and by one to 33 points respectively). The global economy has not yet really got going - above all because heavyweights like the USA and China have recently changed down a gear. In the case of exports to Russia, the lowest point has not yet been reached. In the eurozone on the other hand, the recovery is gaining pace. In the capital goods segment, the positive mood from the beginning of the year has darkened somewhat. The demand for capital goods is less price-sensitive and particularly dependent on a good global economy, which in recent times has fallen short of expectations. The business climate balance in the entire main group has fallen slight-

10 10 DIHK-Survey Early Summer 2015 ly from 35 to 33 points. Among manufacturers of other vehicles and machinery, the situation assessments are no longer quite as good as in the previous survey (balance decline from 49 to 39 points and from 32 to 30 points respectively). Companies from domestic market-oriented investment sectors have also lowered their sights to a certain extent in their situation assessments. In the field of machine repairs and installation, the reply balance has fallen from 43 to 40 points, and in capital goods leasing from 32 to 20 points.... motor vehicles and health have managed to uncouple themselves Consumer industries: running smoothly in manufacturing industry services surprising negatively In contrast, the manufacturers of motor vehicles rate their current business situation as better. Their business is strongly influenced by the demand from private households. Also in the field of medical technology (balance increase from 41 to 44 points), the business developments are following the global investment cycle less closely. Instead, the stable trend of higher demands on health care dominates here. This is also reflected in the positive further improvement in the situation assessment of the pharmaceutical manufacturers (balance increase from 38 to 49 points). Overall, the brightening mood among the producers of consumer goods continues. The balance in this main group has risen slowly but continually by one to 28 points. It is therefore now 15 points above its average since 2003 (manufacturing industry overall: by twelve points). Above all the manufacturers of furniture (balance increase from 24 to 39 points) and clothing (balance increase from 17 to 31 points) assess their current business situation as being significantly better than it was at the beginning of the year. Although producers of leather goods as well as jewellery, musical instruments, sports equipment or toys have lowered their sights admittedly starting out from a high level (balance decline from 39 to 20 points and from 37 to 25 points respectively), the domestic producers can benefit from the increased purchasing power here in Germany. Increases in employment and wages, the lower prices resulting in particular from the low oil price and at least in the short term also the social security benefits, in particular with respect to pensions, are providing stimuli to consumption. Nevertheless, in most other consumer categories, these framework conditions are not able to ensure better situation assessments in the early summer of Here, a pattern is beginning to appear that the sectors which are lowering their sights are those which are more concerned about rising labour costs than the development in demand: in the hotel and restaurant industry the reply balance has plummeted from 34 to 26 points, with the deterioration in mood being particularly evident among other personal service providers such as laundries, hairdressing salons, saunas and solariums (balance decline by seven to 28 points). Among the travel agents and in the leisure industry, which also includes fitness studios, for example, the mood has also deteriorated (balance decline in each case by two to 29 points and 33 points respectively). In all of these sectors, businesses have recently been much more worried about their labour costs and the economic policy framework conditions than they have about demand.

11 DIHK-Survey Early Summer Mixed picture in the services sector The deterioration in mood also applies to the providers of financial services (balance decline from 45 to 41 points). In the insurance industry, the situation assessments have even slipped on balance to their lowest value since 2009 (27 compared to the previous level of 49 points), with the mood deteriorating appreciably among life insurers in particular. The low interest rate environment represents a major challenge not only to the insurers, but also the banks. In the banking industry the reply balance has fallen from 44 to 42 points, which still represents a good level. The information and communications industry is no longer as satisfied as it was at the beginning of the year (balance decline from 41 to 38 points). In contrast, the situation assessments of the health and social services have again reached the maximum value from the previous year (new balance: 49 after the previous level of 40 points). Among the company services the mood remains more or less unchanged at a high level on balance (balance: 40 after the previous level of 41 points) - these businesses are following in the wake above all of manufacturing industry. Nevertheless, the various sectors are undergoing strong developments in opposite directions in some cases. For example, among R&D service providers the reply balance has dropped from 46 to 30 points, while in the temporary employment sector it has fallen from 26 to 18 points and among the organisers of trade fairs, exhibitions and congresses from 49 to 41 point. In contrast, the business climate balance in the group of certified public accountants, legal and tax advisors has even reached a new high (65 after the previous level of 45 points). The situation assessment has significantly improved above all among the job placement services (balance increase by 20 to 31 points). Transport falling behind Trade thriving in all respects In the transport industry, the rising industrial production and low oil prices are not sufficient to produce a better situation assessment. The improvement seen in the previous survey has disappeared again (balance decline from 21 to 19 points, as in the fall). In this sector the labour costs have now become the greatest business risk as well (53 percent since the beginning of 2015). Deteriorating situation assessments have also been submitted by companies operating in all modes of transport. In the land transport sector (balance decline from 19 to 15 points) it is above all in the taxi industry that the mood has deteriorated (balance decline by 22 to minus 16 points). Unlike the aforementioned service sectors, traders assess their business situation as being noticeably better. In the retail trade the balance has increased by five to 22 points, and in the motor-vehicle trade even by 15 to 21 both trade segments have been mostly sceptical over the last few years (average since 2003 one point and minus three points respectively). Here the worries about demand are still higher than the labour costs risk, which only follows in second place. The improvements in the general economic situation of manufacturing industry and the retail trade are also being felt among wholesalers and trade intermediaries (balance increase from 23 to 24 points), so that the entire trading sector is considerably more satisfied all in all than it was at the beginning of the year (balance: 23 after the previous level of 18 points).

12 12 DIHK-Survey Early Summer 2015 Construction: doing well through the winter The construction industry assesses its situation best of all in the comparison of all branches of the economy. The current balance is 35 points (beginning of the year: 34 points). This is the second highest value for the early summer since the beginning of the surveys only in 2014 the mood was even slightly better after a particularly mild winter. Compared to the previous survey and also the previous year, the situation assessment has only deteriorated in civil engineering (balance decline by seven to 22 points; previous year 29 points) the revival in public investments that had been announced is still waiting in the wings. The main source of stimulus for the construction market remains private house building this is where the low interest rates are having a positive impact above all. This is also being supported by the growth in incomes and in the meantime also the growth in the population. In the structural engineering sector and the finishing trade, the situation assessments have also improved (by three to 37 and by two to 39 points respectively). Architectural and engineering offices as well as the property sector have not quite been able to maintain their high levels from the previous survey (balance deterioration from 47 to 44 and from 53 to 52 points).

13 002 DIHK-Konjunkturumfrage Frühsommer 2013 Expectations

14 14 DIHK-Survey Early Summer 2015 Optimism increases The companies are increasingly optimistic with regard to the coming months. The business expectations are visibly improving in early summer, most strongly in the construction industry. It is especially profiting from sustained low interest rates. The continued low oil price and the weak exchange rate benefit the manufacturing industry, whose expectations are also increasing. The higher purchasing power stimulates the confidence of the trade branches. Optimism is also on the increase among service providers, but the worsening of several framework conditions inhibits this sector, such as the minimum wage or the increasing bureaucratic requirements. Expectations gathering pace Development in demand continues to improve Compared to the beginning of 2015, the balance of the business expectations has improved once more throughout the entire economy and that with even greater dynamism. In the meantime, 26 percent of companies are expecting business to improve and only 13 percent that it will become worse. The upshot of this is that the reply balance has climbed to 13 points (previous survey: seven points; fall 2014: six points). However, business is not as optimistic again as it was one year ago (balance in the early summer of 2014: 18 points). The proportion of businesses expecting business to remain the same remains high: 61 percent placed their cross here in the survey. This share has remained at a remarkably high level since the beginning of the euro national debt crisis (average for the reply "unchanged" since the early summer of 2010: 60 percent; 1991 to 2010: 51 percent). The domestic demand risk has further declined in early summer and is 44 percent for the overall economy (beginning of the year: 48 percent; fall 2014: 51 percent). The greatest falls are found in trade and the construction industry. This is caused in the main by the fact that consumers have acquired more purchasing power and are displaying a greater propensity to consume thanks to the low oil price in the year-onyear comparison and the good developments in terms of employment and wages. Additional factors are the rise in investments here in Germany and the continuing expectations of a strongly developing global economy. The foreign demand risk has Enterprises' Business Expectations (in percent) better about equal worse balance Early Summer Fall February Early Summer Fall February Early Summer

15 DIHK-Survey Early Summer Enterprises' Business Expectations - in points Saldo long-time-average = fallen again in the view of the export industry and at a faster rate to its present level of 38 percent (beginning of 2015: 45 percent; fall 2014: 47 percent). Geopolitical crises have not worsened. The prospects for growth among important trading partners such as the USA, China and other emerging markets are not disproportionate or free of risks, but remain well within the positive range in The fall in the oil price is also providing additional purchasing power to customers from regions of the world which import their energy. This should more than compensate for the weaker demand from the oil-exporting states. Costs flashing on the risk radar In the overall view of the business risks, however, the risks which are becoming increasingly important are those which have up to now played a role as economic drivers in the form of a special factor: the fallen oil price and the weak euro. The risk perception among the costs of energy and raw materials has increased as a result by three points to 30 percent. Previously, this risk had continuously declined since the fall of The current rise is also attributable to the fact that although the oil price is even lower than in the previous year, the lowest point is behind us. Since the lowest levels at the beginning of the year, the price of crude oil has increased by more than 40 percent when adjusted for fluctuations in exchange rates. Companies and consumers cannot therefore expect any further boost from this side.

16 16 DIHK-Survey Early Summer 2015 Weak euro = expensive imports Euro not falling into a bottomless pit The appreciable rise in the exchange rate risk from 18 to 26 percent in the export industry is likely to have been driven not least by the procurement side for energy and raw materials. The weak euro exchange rate is increasing the prices for imports of raw materials and energy carriers which are invoiced in dollars. 44 percent of companies which consider the larger fluctuations in the euro exchange rates to be a business risk also put a cross in the box for "energy and commodity prices" (industry as a whole: 42 percent). Overall, the "quantitative easing" programme of the ECB as a second special factor benefits exports. Even if German exporters offer goods which are significantly less price-sensitive than their partners in the eurozone, the weakness of the euro is proving to be particularly favourable for their exports to non-euro countries. In addition, the improvement in price competitiveness resulting from the policy of the ECB for the entire common currency area compared to the rest of the world is helping the tender seedling of the eurozone to grow. The still most important sales market for German exports is recovering at the current margin with increasing momentum. However, the special effect resulting from the weakness of the euro appears to be slowly coming to an end. Recently the euro has again noticeably gained in value against the US dollar. The increasing economic strength of the euro area and the simultaneous decline in momentum in the USA are preventing any further appreciation in the value of the dollar. The start of the exit of the US Federal Reserve from the policy of easy money, which is expected in the fall, is likely to be priced to a large extent into the exchange rate. Up to now the export-strengthening effect of the weakness of the euro has remained below expectations. Just as with the rising risk assessment with respect to the exchange rate, this indicates that the stimulus to the economy coming from the value of the currency is less than in the past it is possible that this doping effect will not be as strong as expected. What are the biggest risks for the economic development of your company in the next twelve months? (in percent; multiple anwers possible; *export industry) Early Summer 2013 Fall 2013 February 2014 Early Summer 2014 Fall February Early Summer domestic demand foreign demand* financing conditions labor costs lack of skilled workers exchange rates* prices of energy and raw materials economic policy conditions

17 DIHK-Survey Early Summer Biggest risks for the economic development (in percent) financing conditions labour costs lack of skilled workers exchange rates* Prices of energy and raw materials economic policy conditions Feb 2010 Fall 2010 Feb 2011 ES 2011 Fall 2011 Feb 2012 ES 2012 Fall 2012 * export industry; Feb = February, ES = Early summer Feb 2013 ES 2013 Fall 2013 Feb 2014 ES 2014 Fall 2014 Feb 2015 ES 2015 Low interest rates spurring on construction once more Special effect number three, however, is continuing to act with full force. The historic record low in interest rates is spurring on the construction industry and also helping with the current rise in investments. In the construction sector of the economy, the business expectations have left the negative range from the beginning of the year. The balance of the business expectations has climbed by 14 to 13 points. The rise is also strong in the seasonal comparison, and in particular stronger than in the previous year (increase by six points) at that time the mild winter was followed by a relatively weak early summer. The lion's share of the current improvement is attributable to civil engineering and the finishing trade (balance increase by 17 and 16 points respectively). The new expectation balance of nine points in civil engineering is also well above the average of minus four points that is usual in this sector in the early summer. Since this field is heavily dependent on public contracts, the improved financial situation of many municipalities is giving hope that the investment backlog will be alleviated. The announcement by the federal government of an increase in public investment funds of 15 billion from 2016 on has admittedly not yet found its way into the order books especially as experience has shown that its implementation takes longer than estimated.

18 18 DIHK-Survey Early Summer 2015 Biggest risks for the economic development (in percent) domestic demand foreign demand* Feb 2010 Fall 2010 Feb 2011 ES 2011 Fall 2011 Feb 2012 ES 2012 * export industry; Feb = February, ES = Early summer Fall 2012 Feb 2013 ES 2013 Fall 2013 Feb 2014 ES 2014 Fall 2014 Feb 2015 ES 2015 Residential property: the boom continues Downside: structural risks Not only the finishing trade, but also companies working in the field of structural engineering are enjoying full order books. Building equipment is becoming a temporary "landmark" in many a city centre. Consequently, the level of optimism in this sub-segment of the construction industry is increasing, with the balance of business expectations now being twelve points (increase of twelve points as well). In the real estate industry the business expectations have also increased by two to 13 points on balance. Further beneficiaries of the positive developments in construction in this early summer in the basic materials industry are companies working in the fields of glass, ceramic and stone processing, as well as the "extraction of stone and earth, mining" sector. Their business expectations have risen significantly on balance by twelve to 14 points and by 13 to zero points respectively. As hopeful as partial aspects of current economic developments may seem, the pattern of structural business risks is also becoming stronger among companies. These continue to increase or are not displaying any noticeable improvement: The concerns about higher "labour costs" remain stuck at their highest level, which they had reached at the beginning of the year (42 percent). In the East the labour costs are still the top risk. Almost half of all companies (49 percent) refer to this in the survey. The greatest effect here comes from the uniform

19 DIHK-Survey Early Summer statutory minimum wage, which has been in force since the beginning of the year which is being felt directly and also on the wage structure above 8.50 per hour. The risk of the "shortage of skilled workers" has even increased by one point to its present level of 39 percent, which again is a new record. Over the course of the last five years it has more than doubled (beginning of 2010: 16 percent). Although the noticeable increase in wages is also mobilising additional employees, this risk has become stuck at a high level. Among companies who are experiencing difficulties as a result of the availability of qualified employees, the assessment of the business risk of labour costs is even higher. Almost half of businesses who complain of a shortage of skilled workers are concerned about the pressure from rising wage costs. This is particularly serious in the services sector, where 52 percent of companies state that an increase in labour costs represents an obstacle to their business, while at the same time putting a cross in the box next to the risk of the shortage of skilled workers. The business risk of "economic policy framework conditions" has declined only slightly by two points to 43 percent. The situation is gradually easing above all in the export industry (from 43 percent at the beginning of 2015 to 37 percent), after concerns here had temporarily noticeably increased not least due to the large number of geopolitical crises (from 34 to 43 percent from the beginning of 2014 to 2015). In contrast, the risk has hardly declined among service providers while in the transport industry the risk has reached a new record level (45 percent). Some of the previous "economic policy risks" have become reality in the meantime in terms of the costs of employees and bureaucracy. Furthermore, there is the continuing threat of regulatory burdens, such as the Equal Pay Act, the right of part-time workers to return or the regulation of the employment market with respect to temporary employment and contracts for work and services. A look at these details of the risks clearly shows: in view of the numerous risks, the current favourable developments in the economy must not be allowed to obscure the fact that politicians are currently borrowing money from the future: investments are significantly weaker than in other industrialised countries, and in terms of public infrastructure we are living off its assets. Labour costs are rising appreciably and energy costs are higher than elsewhere so that in the meantime more companies are investing abroad again in order to save costs with negative consequences for domestic investments. 1 It will only be possible to pay back this loan if politicians finally help again to improve the performance of Germany as a business location: in the short term by eliminating the burdens on industry and in the medium term with 1 Cf. "Europe's points total increases once more cost pressures more important again", GCCI survey on foreign investments 2015.

20 20 DIHK-Survey Early Summer 2015 significantly more public investments and better framework conditions for private investment projects. 2 Manufacturing industry with growing confidence Manufacturers of capital goods: primarily foreign markets should put things right Consumer goods business running well (almost) everything is right The equal improvements in domestic and export prospects are benefiting the manufacturing sector. The business expectations in manufacturing industry have visibly brightened once more the balance has risen by six to 17 points (export industry: also by six points). The concerns about setbacks in domestic demand are diminishing (decline from 51 to 48 percent), but to an even greater extent the worries about foreign demand (fall from 39 to 33 percent). This reflects not least the increasing strength of the upswing in the eurozone with an almost 40 percent share of the "home market". The reforms in the former crisis countries of Spain, Portugal or Ireland are increasingly paying off. Italy is also reaping the first successes of its policy of smaller reform steps. France is showing signs of a cyclical recovery. The export-oriented manufacturers of capital goods are also enjoying better business prospects. The reply balance has risen by six to 20 points, most clearly in the field of mechanical engineering (balance improvement by eight to 21 points). The motor vehicle manufacturers are also gaining in confidence, albeit to a lesser extent than the average in this main group (balance increase by three to 16 points). In the mechanical engineering and vehicle construction sectors, concerns about demand from abroad are diminishing above all, as in the entire main group (decline in the risk share by five points in each case and by four points in the vehicle construction sector; in contrast, the decline in concerns about domestic demand is only one point in each case). The producers of durable and non-durable consumer goods, who concentrate mainly on the domestic market, are in a better mood once more. The rise in the expectation balance by five to 14 points in this main group, which is traditionally less cyclical, is almost keeping pace with industry as a whole (increase by six points). The manufacturers of short-lived products in particular (consumer non-durables) have recorded a further balance increase (by seven to 14 points) with the strongest being among the producers of leather goods (balance increase by 13 to eleven points). The domestic engine of the economy is running particularly well thanks to the strength of the "consumption cylinder". The success story on the labour market continues virtually unabated. Similarly, stimuli are coming from the wage increases and the higher social security benefits, whose negative feedback loops to employment are only gradually becoming visible. For example, it is questionable with respect to the minimum wage whether the components which increase purchasing power in the short term will offset the declines resulting from losses in employment and price increases. In the case of a downturn, it is likely to prove to be a burden anyway. Thanks to the low inflation rate, the prospects for private consumption currently 2 Cf. "Strengthening of investments in Germany, report of the Expert Commission on behalf of the Federal Minister for Economics and Energy, Sigmar Gabriel 2015.

21 DIHK-Survey Early Summer remain favourable overall. The fall in the price of oil is being felt across the board among consumers at present. Trade feeling optimistic, service providers mixed The buying mood is also bringing new impetus to the trade and services sectors, such as the hotel and restaurant industry. After the decline in sentiment at the beginning of the year, optimism in the retail trade is growing, leading to a balance of six points in the business expectations (increase of seven points). The trade in health-related goods has achieved a balance increase of ten points to a higher level overall (new balance: 16 points), thanks to the structural component namely demographics being felt in addition to the economic stimulus. Compared to the beginning of the year, the hotel and restaurant industry is more optimistic, although in the year-on-year comparison the mood is depressed. The balance increase compared to the previous survey from four to 16 points contrasts with the decline of two points compared to the early summer of Here, concerns about demand are remarkably rare (unchanged at 22 percent; previous year: 28 percent). Instead, the worries about rising labour costs are unusually high (63 percent risk responses; previous survey: 65 percent; previous year 57 percent) with a simultaneously greater shortage of skilled workers (60 percent; previous survey: 61 percent; previous year 56 percent). This means that the positive developments in purchasing power are more often being slowed down by rising wages and the deterioration in the availability of personnel than in the economy as a whole (42 percent and 39 percent respectively). Personal services less optimistic Travel agents are focusing more on customers with increasing levels of affluence and wanderlust. Expectations remain positive, even if the good mood from the beginning of the year has not quite been maintained. The balance of the business expectations has declined by seven to nine points, after having risen by nine points from the fall of 2014 to the beginning of The domestic demand risk has fallen (decline from 45 to 41 percent), with the economic policy framework conditions now dominating in the view of companies (45 after the previous level of 41 percent). The other personal service providers such as laundries, hairdressing salons, saunas or solariums are more sceptical than in the previous survey (decline in the expectation balance by one to seven points). In this sector it is the risk of labour costs which clearly dominates (55 percent; second largest risk: "economic policy framework conditions" at 43 percent). This pattern also dominates in other service industries with a high level of personnel and comparatively low qualification requirements (cleaning services: balance decline by three to 14 points; security industry: balance decline by two to 15 points). This scepticism correlates with references to the risk of labour costs, the number of which is well above average (68 percent in the security industry, 63 percent among cleaning services). Even in companies which are not directly affected by the minimum wage, the pressure from wages in this segment of low-skilled employment is likely to increase.

22 22 DIHK-Survey Early Summer 2015

23 003 DIHK-Konjunkturumfrage Frühsommer 2013 Export Expectations

24 24 DIHK-Survey Early Summer 2015 Upwards trend strengthens Exports are gradually gaining momentum. The weakness of the Euro is incentivizing exports to third countries. In addition, the economy in the countries of the Eurozone remains on the path to recovery. These important consumer countries are once more increasingly purchasing German products. The economy in the USA is robust. The development in Russia continues to worry German companies greatly. The expectations of the companies have at least reached rock bottom here. In China, the rapid growth of the past few years can no longer be attained. This will probably result in a lower increase of German exports. Better safeguards for the recovery against setbacks The better export perspectives overall are most likely to be attributable to improved foreign markets, which recently were provided with a question mark, and not so much to a global economy supported by individual boom markets. The factors which speak in favour of this are the fact that: the proportion of businesses with optimistic export expectations has increased only slightly from 30 to 31 percent; in contrast, the share of pessimists has declined noticeably from 13 to ten percent. The resulting reply balance has climbed accordingly from 17 to 21 points, after already having risen previously by two points. For the first time in a year the export balance has therefore returned to its long-term average since 1992 since then exports have grown every year by a good five percent. the share of businesses which expect no change to exports on balance has climbed to 59 percent a value which has never been surpassed. at the same time, the share of exporting businesses who are concerned about foreign demand has declined appreciably by seven points to 38 percent corresponding to the average value since Enterprises' Export Expectations (manufacturing industry; in percent) higher about equal lower balance Early Summer Fall February Early Summer Fall February Early Summer

25 DIHK-Survey Early Summer Enterprises' Export Expectations (manufacturing industry) - in points Saldo long-time-average = furthermore, all branches of industry are expecting growth in exports, with the only exception being the two less export-oriented sectors of the "printing industry" and the "extraction of stones and earth, mining" (with balances of minus four after the previous level of minus three points and minus nine after the previous level of minus eight points respectively). Broad global base returns The main factor speaking in favour of the scenario of export growth with many strings to its bow is the pleasing developments in many national economies within the euro area. 3 The reform states of Ireland, Spain and Portugal continue to develop positively, as does Italy with some delay. France has recently provided signs of hope and has at least tackled some promising reforms. The weak euro is strengthening the export business in the currency zone and making business life harder for its importing competitors. As a result, the export prospects on the most important sales market for German companies beyond the country's borders are improving. The uncertain economic and political situation in Greece may well be a cause of concern, but the reactions to this also show the lower susceptibility of the single currency area to crises. In the business with Russia there are at least initial signs of hope that the situation has 3 Cf. CCA World Business Outlook, May 2015.

26 26 DIHK-Survey Early Summer 2015 bottomed out in the meantime after the painful slumps that initially occurred. In the geopolitical hotspot of the Middle East the situation does not appear to be escalating any further; the conflict in Yemen does however possess escalation potential. Overall, the worries about the economic policy framework conditions have diminished significantly in the export industry (decline by six points; industry as a whole by four points; overall economy by two points). The growth in the USA, China and most other emerging markets has indeed lost some of its impetus recently, but is continuing nevertheless and the demand for German goods is benefiting from the weak euro. Furthermore, the low energy and commodity prices are creating considerable scope for purchasing power improvements on these markets. Competitiveness as an illusionary giant Currently, the price competitiveness of the German economy is remarkably high however, only because the value of the euro has recently been lower compared to the dollar than at any time in more than ten years. This price advantage is attributable above all to the sustained high levels of dynamism of the USA economy and the expansionary policy of the European Central Bank. Furthermore, many other euro states have taken advantage of the last few years for ambitious measures to improve their competitiveness. The ECB indicator on price competitiveness no longer shows any advantage for Germany compared to other euro countries for the first time since In the current GCCI business survey, 43 percent of companies who are now expecting their export business to be weaker consider the labour costs to be a business risk at the beginning of 2012 this figure was only one quarter (increase by 18 points compared to twelve points in the overall economy). Above all, additional financial burdens have recently brought with them a number of expensive and bureaucratic measures, in particular in terms of pensions and on the labour market. Furthermore, electricity prices in Germany remain considerably higher than elsewhere, for example up to three times higher compared to the USA and are still rising. The low global market prices for crude oil are indeed providing businesses with some financial relief albeit to the same extent to international competitors. In any case, it is by no means certain that the commodity prices will remain at this level over the long term the risk assessment with respect to energy and commodity prices has increased in the export industry from 38 to 42 percent. A further warning sign is the proportion of companies which are investing abroad for cost reasons a figure which has been rising again for the last two years. 4 4 Cf. " Europe's points total increases once more cost pressures more important again", GCCI survey on foreign investments 2015.

27 DIHK-Survey Early Summer Exchange rate as a support for exports on shaky ground Main groups: upping the pace winners in every sector Although the weakness of the euro is proving favourable to the export business to third countries, it is also covering up incipient location weaknesses. Overall, the exchange rate risk has even increased to a new peak level in the view of companies (26 percent; previous survey: 18 percent; previous year: 14 percent). The strong fluctuations in the exchange rate are causing confusion with respect to long-term plans, with hedging transactions becoming more expensive. Moreover, the costs of intermediate goods from abroad, in particular for raw materials, are also rising. For example, the risk responses in the textile industry have increased by a particularly marked extent (by 15 points in the comparison with the previous survey and by 25 points yearon-year up to 37 percent) with this sector in particular importing many intermediate goods from non-euro countries. In the furniture and clothing industry as well, the share has risen sharply compared to the early summer of 2014 (from 14 to 25 and from 22 to 45 percent respectively). Furthermore, investments made in order to protect against exchange rate fluctuations, such as production in other currency areas ("natural hedging"), are now displaying their drawbacks. Moreover, the central banks of many countries will probably keep their base rates at a low level or even reduce them in view of the weak euro. Confidence is growing in the three main groups at more or less the same rate. In the intermediate goods and capital goods industry the export balance has increased in each case by four to 20 and 23 points respectively. In consumer goods production the export expectations have improved on balance by two to 20 points with their business developments fluctuating to a lesser extent than in the two other main groups. At the same time, worries about foreign demand have diminished noticeably in each case: among the manufacturers of intermediate goods by eight points to 32 percent, among the producers of consumer goods by seven points to 23 percent and among the producers of capital goods by five points to 44 percent. Accordingly, the biggest winners in every sector are to be found across all main groups. The export balance in the timber industry has risen by seven to 24 points (highest value since fall 2010; decline in the foreign demand risk by ten points to 22 percent) and in medical technology by 18 to 51 points (decline in the foreign demand risk by twelve points to 39 points). The reply balance has also climbed particularly strongly in metal production and processing (by 20 to 19 points, a four-year high; decline in the foreign demand risk by 20 points). Unlike other sectors, concerns about labour costs as well as energy and commodity costs have declined here as well (by four and two points respectively), but remain higher than industry as a whole at 41 and 54 percent respectively. The export expectations have noticeably deteriorated only in the chemical industry. The reply balance has fallen by four to 29 points, albeit starting from a high level. Although the concerns about demand have also declined here significantly (from 51 to 39 points), worries about the development of exchange rates have risen here (by twelve points to 33 percent) and energy and commodity prices (by six points to 56 percent) more than in other sectors.

28 28 DIHK-Survey Early Summer 2015 Service providers operating abroad cautiously optimistic An improved export business is also advantageous to the transport industry. Accordingly, the reply balance of transport companies that work in the field of exports has returned to the positive range (balance increase from minus three to plus three points) a development which is also benefiting from the significant growth in imports. Among wholesalers and trade intermediaries the export expectations have not improved any further on balance however (balance: 14 points). Sectors which view the coming months with greater confidence in terms of their foreign business are IT service providers and management consultancy firms (balance increase by three to 28 points and by seven to 20 points respectively). By contrast, the expectations of construction companies in the early summer of 2015 are subdued (balance decline by three to minus seven points), whereas architectural and engineering offices have an optimistic outlook (balance increase by two to 20 points) as far as their foreign business is concerned.

29 DIHK-Survey Early Summer Supplementary Assessments on the Development of individual Target Regions The assessments are also based on the "CCA World Business Outlook 2015". This survey records the feedback from around 3,000 member companies of the German Chambers of Commerce Abroad (AHKs). Eurozone gaining momentum Spain as a model pupil Bottoming out in Russia The countries of the eurozone have provided surprises across a broad front with their increasing growth momentum. For example, the economy in France managed to achieve an increase of 0.6 percent in the first quarter of this year. Reforms which have been initiated, such as the reduction in the employer's national insurance contributions, can also contribute towards this in the same way as the expensive monetary policy of the ECB. This is making the business of exporters easier. Italy is also making others sit up and take notice: in the first quarter its economy came out of recession. Ireland and Portugal have also stabilised their paths towards growth. The wavering course taken by Greece and the return of the country into recession has not pulled the rest of Europe down with it. This is encouraging, so that the eurozone now has what it takes to develop into a driver of growth. Spain has developed into a model country in terms of economic reforms. The rise in the retirement age from 65 to 67 and the increase in the rate of VAT from 18 percent to 21 percent have asked much from large sections of the population. However, the success of these policies is now becoming increasingly visible. German companies in Spain proved to be particularly optimistic with their responses to the "CCA World Business Outlook" survey: 40 percent are expecting the economic situation to improve in the coming twelve months. For their own business prospects even 54 percent are optimistic. The recruitment of new employees locally is planned by 38 percent of companies. The downturn in Russia has not yet been overcome. The country will probably slide further down the ranking of German export nations (2014: rank 11). The CCA companies are sceptical with respect to their personnel and investment plans: more than one in five businesses considers itself forced to reduce its workforce. Only a few firms are currently planning to increase their number of employees. German companies are also holding back with their investments: the balance between increasing and declining investment budgets is minus 23 points. However, there are at least signs that the situation is bottoming out: the economic situation in Russia is now only assessed as being moderately negative; with respect to their own business, local German companies are even slightly positive. The strategy of many companies to hold on to their Russian location in spite of adverse conditions and maintain their business relations with Russia might yet pay off.

30 30 DIHK-Survey Early Summer 2015 USA remains the driver of the global economy The upturn in the US economy continues, albeit with somewhat less dynamism. The US economy did indeed slow down considerably at the beginning of the year, with the Gross Domestic Product practically stagnating in the first quarter of Besides the bad weather and numerous strikes at the ports, the strength of the dollar is also probably partly responsible for the weak start to the year. In spite of everything, the USA will be able to achieve strong growth this year again. Domestic consumption continues to provide strong stimulus, also with respect to imports in particular due to the currency. Private consumption makes up more than two thirds of economic activity in the USA. The increase of around three million jobs in the last twelve months represents the strongest growth in employment for 15 years. The unemployment rate is lower than it has ever been since the middle of The effects of the drop in the price of oil on the US economy are not entirely positive, however. Although the mood of consumers has further improved, the worldwide drop in demand for "black gold" has at the same time led to job losses in the USA. A further prospective risk is the strong US dollar, in particular compared to the Euro. Exports are becoming relatively more expensive, with competition from imports increasing. The aim of the government to strengthen a further economic pillar with exports in addition to private consumption will remain a major challenge for a long time to come. The exit from the expansionary monetary policy might occur later and more slowly than expected. Furthermore, more disputes concerning the budget cannot be excluded. Chinas economy swinging towards healthier growth Asian Tiger continues to advance The rapid growth of previous years is now a thing of the past in China. The forecast increase of less than seven percent a new record low for the last 25 years is also leaving its mark on German exports. The double-digit growth in exports in 2014 has given way to the rather moderate rise of around five percent. Admittedly, this establishes China as the fourth most important sales market for German companies. China might even replace the Netherlands from its top position as a procurement market. The decisive factors in this on the one hand are the lower prices for crude oil, which Germany largely purchases from its neighbours in the Netherlands. On the other hand, China supplies the increasing demand of customers here for information and communication electronics. Healthier growth in the Chinese economy which is more environmentally friendly offers great opportunities for German companies in particular: not only the offers of German companies in the field of renewable energies might come into play here. Providers of Made in Germany solutions which generally conserve resources are also seen favourably. China is hoping to reduce overcapacity in state-owned businesses and its excessive focus on exports without leaving behind skid marks which are all too deep. One risk, however, is the border disputes in the South China Sea (with Vietnam) and the East China Sea (with Japan). Southeast Asia is gradually becoming more important for the German economy. In Indonesia the prospects of continuity look good after the presidential elections in October The new reform-oriented president would like to expand the integration of Indonesia with the global economy and is focusing increasingly on direct foreign investments. With 250 million inhabitants and a per capita income of around

31 DIHK-Survey Early Summer ,500 US dollars, the country has the largest domestic market in Southeast Asia. Growth rates of around six percent per year underline the sales opportunities. Furthermore, Vietnam is currently undergoing a transformation to a market economyoriented system. The country has been growing annually by five to six percent since A free trade agreement with the EU, which is close to being signed, is very likely to further boost bilateral economic relations. The Philippines has further stabilised politically under President Aquino. Recently, economic growth has been seven percent per year. The outsourcing activities of Western corporations, including the areas of accounting and call centres, are increasing employment levels and the purchasing power of its inhabitants in the country. Abenomics in Japan reaching its limits Reforms in India having an impact After China, Japan is Germany's second most important trading partner in Asia, albeit by a large margin. In spite of the significant fall in the value of the yen, the strategy of stimulating the economy by monetary policy measures has not taken off. Mainly due to the hike in consumption tax from five to six percent, the Japanese economy has fallen back into negative territory in the meantime. The return to growth has so far been mainly due to stock investments. The decisive structural reforms aimed at deregulating and opening up of markets, as well as increasing the labour participation rate of women, are faltering. Even the attempts over the last few years to focus increasingly on the globalisation of economic activity have not brought any success so far. Instead, the Japanese trade deficit is still high also an indication of weak competitiveness. In India, the reform efforts of the new government are giving rise to hopes of stronger economic growth. The "Make in India" campaign, which according to the will of Prime Minister Narendra Modi, who was elected in May 2014, is to transform the country into a "manufacturing hub", is being well received by German companies with commitments in India. Their expectations for the country's development and their own business activities are very positive according to the "CCA World Business Outlook 2015". The country is expected to grow faster than China again in 2015 for the first time in a quarter of a century. The excessive bureaucracy of which companies often complain, as well as a legal framework which is ambiguous in parts, are at least on the agenda of the new government. In order to prevent the wave of euphoria ebbing away again, however, concrete measures must now follow. Middle East still in crisis mode The worries about political stability in the Middle East have increased again as a result of the flare-up in fighting in Yemen. Military forces are facing one another there as representatives of Iran and Saudi Arabia. This gives little hope that the situation in the region will soon calm down. Furthermore, the question arises in the oil-rich Arab countries in particular of whether the reduced revenues from oil exports can be compensated for by sovereign wealth funds and whether investments in the diversification of the economy will be continued.

32 32 DIHK-Survey Early Summer 2015 Africa stuck in the commodities trap, Ebola off the agenda Africa continues to become increasingly important for the German export industry, albeit in small steps. The chances of the Ebola crisis in West Africa being overcome soon are good. This is very likely to bring about further commitments on the part of companies. However, beacons of hope such as Nigeria and Angola are facing the challenge of changing the growth model of their national economies in times of low oil prices and reducing their high dependence on the exports of raw materials. If the countries invest in the modernisation of their transport and energy infrastructure, the German export industry will benefit. The continuing weak performance of the South African economy remains a cause for concern, as the land at the Cape influences the economic developments of the entire continent for better or for worse. The predominant current impression is one of economic weakness. This has been shown, for example, by the collapse of the South African rand, which has forced the central bank to increase interest rates. This is also having a negative effect on investments. Since the beginning of this year there have again been further bottlenecks in the energy supply. Colombia and Mexico catching up in Latin America Economic bright spots in Latin America are Colombia and Mexico. The political stability in Colombia is now also being reflected in high growth rates. As a member of the Pacific Alliance, Colombia is connected to a very dynamic and successful free-trade zone. Mexico is reaping the rewards of an energy reform which is damping down prices. The advantages of membership in the North American Free Trade Alliance (NAFTA) are benefiting the country. More and more businesses from the south of the USA are investing in production facilities on Mexican soil. Overall, however, the expectations of German exporters with respect to their business in Latin America remain cautiously optimistic as shown by the current "CCA World Business Outlook 2015". Brazil as the dominant economy in the region is currently recovering from a recession. Negligences in terms of competitiveness become evident. Productivity gains remain too small not least due to the small share of the manufacturing sector in the gross value added for a return to growth in continuous catch-up development. The concerns about a devaluation of the Brazilian real and the continuing failure to achieve the inflation target have forced the central bank to increase interest rates. There is still a chance of a change of course in economic policy, which will help companies to increase their competitiveness.

33 004 DIHK-Konjunkturumfrage Frühsommer 2013 Investment Intentions

34 34 DIHK-Survey Early Summer 2015 Investment intentions improve The investment intentions are improving in all sectors of the economy. Improved sales outlooks domestically and abroad now make more expansive planning possible. Naturally, this is also due to extraordinary effects such as low interest rates and falling oil prices. The increase in investment plans, however, lags behind the dynamics of business expectations. In the industry, manufacturers of intermediate inputs and of consumer goods want to invest more, whereas the capital goods producers are not changing their plans overall. In spite of the trend, the investment intentions in the car industry are decreasing slightly. In the construction industry, building construction is especially planning new capacities. Financing conditions continue to be extremely favorable for companies that want to invest more. Expansive plans in all sectors Sales prospects currently enabling expansion The balance of the investment intentions of companies has increased across all sectors of the economy by three to the current level of twelve points. In the construction industry the balance of the acquisition plans has climbed by four to three points, in the trade and services sectors by three each to the current level of seven and 14 points respectively, and in manufacturing industry by two to 13 points. The rise reflects the broad influence of the sustained special factors which are supporting the economy and the good developments overall on domestic and foreign markets. Even so, the increase is still somewhat below the pace at which investment plans were expanded in the past in the case of comparable improvements in expectations. In this respect, the reduction in the gap in investments which has built up over the last few years in Germany would actually even require an above-average boost in investments. However, purely cyclical improvements are not sufficient for this, but instead politicians have to set a course for framework conditions which are more conducive to investments. The positive consumer climate at home is currently resulting in an improvement in sales prospects. The positive development in demand is enabling more expansionary investment plans on the part of companies. Enterprises' Investment Intentions (in percent) higher about equal lower balance Early Summer Fall February Early Summer Fall February Early Summer

35 DIHK-Survey Early Summer Enterprises' Investment Intentions - in points Saldo long-time-average = However, these developments are highly dependent on volatile influencing factors. While the global economy is still gaining momentum at a below-average rate, the current weak euro exchange rate is making a significant contribution to the positive sales expectations abroad. Admittedly, it does not have to remain at such a low level over the long term and it is also making the imports of the requisite intermediate goods more expensive at the same time. The decline in the oil price, which is providing direct financial relief to companies and enabling increased consumption on the part of consumers, might be only temporary, at least in part. The energy and commodity price risk has already risen again compared to the start of the year by three points to 30 percent. Reliance on these special factors is a reason why many companies are only converting the significant improvement in their business expectations into investments. Structural risks remain In addition, long-term risk factors that are hindering stronger investment momentum in Germany remain. Among companies that want to expand their investments, almost half of all companies (48 percent) see the shortage of skilled workers as a serious risk nine points more than from the perspective of business as a whole. The development in labour costs, which is closely linked to the situation of skilled workers, remains at 42 percent at record levels as a business risk. Among companies that are concerned about labour costs, the investment balance is also only nine points, three

36 36 DIHK-Survey Early Summer 2015 points below the average for the overall economy - the financial burden here is limiting the possibilities of preparing for the future. The assessment of the economic policy framework conditions remains a concern for a significant proportion of companies (43 percent). Motives stable, no breakthrough in capacity expansions Consumer industries mostly with plans to expand Capacity expansions continue to play only an average role (26 percent) despite the strong economy. The other investment motives remain largely unchanged. 66 percent of companies state that they are making investments primarily due to a need for replacements; this is followed by rationalization targets (31 percent) and product innovations (30 percent). Only the environmental protection motive has currently fallen by one point to 13 percent and is now back to the level of fall of The good consumption climate among consumers here in Germany, as well as the sustained foreign demand, are supporting increasing investment plans among the manufacturers of consumer goods. Among the producers of durable and non-durable consumer goods, the balance of the investment intentions overall has risen by two to 17 points. In the pharmaceutical industry, which is benefiting from the long-term trend towards greater demands with respect to healthcare provision, the balance has even climbed to 34 after the previous level of 25 points. The situation in the textile, clothing and leather industry is however different. Many of these companies rely on imports from non-euro countries and are therefore affected by the weakness of the euro exchange rate; the exchange rate risk is assessed by them to be significantly higher than in the entire main group (40 compared to 24 percent). This is contributing to a minor fall in investment plans with a balance of eight (previously: nine) points, as well as strategic adjustments: product innovations are gaining significantly in importance as an investment motive in this company group compared to the last survey (by ten points to 41 percent). In the hotel and restaurant industry (new balance: 18 after the previous level of 19 points) and among travel agencies (new balance: four after the previous level of six points), the rate of investment is declining. The retail trade and motor-vehicle trade on the other hand have increased their investment plans (balance improvement by three to four and by four to 13 points respectively); this is enabling them to make up for the interim declines they experienced compared to the previous year (retail trade unchanged, motor-vehicle trade even two points higher). The consumer industries are also taking advantage of the predominantly favourable developments at present to place themselves in a better position for the future. There is also a significant increase in the propensity to invest on the part of the health and social services (increase by 13 to the present level of 36 points). Manufacturers of capital goods maintaining their rate of investment The main group of the manufacturers of capital goods do not have any more expansionary plans. The balance of the investment intentions remains unchanged at twelve points. However, the individual sectors are developing at rates which are noticeably different: manufacturers from the field of electrical engineering are slightly more expansive in their plans, with a balance of 14 after the previous level of twelve

37 DIHK-Survey Early Summer points. This also applies to mechanical engineers, where the balance has increased by one to eleven points. There is also a significant increase in the investment plans in the other vehicle construction sector (balance: 16 after the previous level of nine points) and in medical equipment (balance: 24 after the previous level of 17 points). On the other hand, motor vehicle construction is planning a somewhat slower rate of expansion (decline in the balance by one point to 14 points), with repair and installation businesses also planning to invest less (balance of six after the previous level of eight points). Land transport and warehouse management intent to expand Structural engineering accelerating increases in capacity The generally favourable business cycle dynamics are moving the service providers in the land transport (balance one point after the previous level of minus three points) and warehousing sectors (balance 24 after the previous level of six points) to more offensive investment intentions. In the field of road freight transport in particular, the propensity to invest is back (balance: minus one point after the previous level of minus six points). The non-scheduled bus services sector is also expanding its investment plans once more overall, by three points on balance to the current level of 17. However, there is a shift here in the objectives of the procurement processes: an increase in capacity has dropped by 14 points as a motive and is now just 13 percent, while rationalisation has gained ten points as a reason for investments and has now reached the level of 15 percent. This indicates pressure to consolidate. A comparable situation continues to apply to the taxi industry. Stagnating demand, the minimum wage and new competitors are inducing the sector to tone down its investment plans by a further eleven to the current level of minus 26 points the lowest value in the cross-sector comparison (share of replacements: 82 percent; capacity expansion only eleven percent and therefore the lowest value in the cross-sector comparison, with the exception of the banking industry). With their long investment cycles, aviation and shipping are currently planning with fewer investments in spite of the current good situation (decline by nine to 18 and by three to 13 points respectively); here, the tough price competition in both sectors is leaving its mark. In the construction sector it is above all structural engineering which intends to make new purchases. The balance of the investment intentions is seven points (five points above the previous survey and two points above the previous year) and therefore a record value for a sector which tends to be rather cautious in terms of investments. Furthermore, the investment motives show a further expansionary course: the share of companies which are planning investments to expand their capacity has risen compared to the previous survey by three points to 23 percent (one year earlier this figure was 18 percent). The dynamism in the other segments of the construction industry on the other hand is lower. In the field of civil engineering the balance of the investment plans has risen for seasonal reasons by five to minus three points, and is therefore still below the value for the previous year (one point). Furthermore, expansions in capacity have declined in importance as an investment motive compared to the previous survey (by five points and in the year-on-year comparison by two points to eleven percent). The additional public investments that have been announced in Germany are indeed a step in the right direction, but are not yet having any effects on capacity. Even so, they are still below the required order of magnitude and will not

38 38 DIHK-Survey Early Summer 2015 therefore trigger any major increases in the investment plans of this sector, which is strongly influenced by government contracts. The finishing trade, which is less dependent on the season, also intends to invest more (balance: three after the previous level of minus one point), without reaching the level of the previous year (five points). Investment plans of the credit services sector more consistent Financing not an obstacle In spite of the weak profit situation, the banking industry in Germany is planning often of necessity with increasing investments overall. The balance of the plans has climbed by four to ten points. This means that the plans of the three pillars of the credit services sector are now closer together: the credit banks are increasing their plans by a further two to 21 points, in the cooperative sector the balance remains unchanged at seven points and the savings banks, which at the beginning of the year were very restrained, are now catching up (increase by twelve to a balance of eleven points). Although in terms of time the large number of new regulations will first of all be reflected in the investment plans of the major banks, adjustments will ultimately be required by institutes of all sizes in the medium term also because the regulations do not distinguish sufficiently in many cases between the size and business model of an institute. Furthermore, the advancing digitisation of the business of the banks requires considerable investments, but also offers significant potential for reducing costs at the same time in the medium term. For this reason, rationalisation and product innovation are also becoming increasingly significant in the banking industry (increase by four and two points respectively to the present level of 48 percent and 17 percent respectively). On the other hand, only nine percent of companies are planning to invest in capacity expansions - the lowest value in the cross-sector comparison. The insurance sector is also facing major changes and maintaining its high rate of investment almost unchanged with a balance of 18 (after the previous level of 19) points. Access to borrowed capital is currently only an obstacle to investments in rare cases. The business risk of "financing conditions" has again reached a record low of eleven percent (after the previous level of twelve percent). Even among smaller companies with fewer than 20 employees, which traditionally have to overcome the greatest hurdles with respect to accessing credit, only 14 percent of these consider this to be a risk factor (after the previous level of 15 percent). Companies which invest usually need much higher sums of money than those required for the mere financing of ongoing operations itself. However, this group does not see any disadvantages in this respect at the moment either: only eleven percent of companies with increasing investment intentions are worried about the funds required. This means that it would still be possible to expand investments to a much greater extent if the economic policy framework conditions for this create the right condition.

39 005 DIHK-Konjunkturumfrage Frühsommer 2013 Employment Intentions

40 40 DIHK-Survey Early Summer 2015 Risks hinder increase in employment Companies continue to hire. Construction and trade are increasing their hiring plans after a weak beginning to the year. Industry continues to be expansive on the topic of personnel. However, service providers continue to be reluctant which were previously long-time employment powerhouses. Overall, the employment plans are not wholly keeping pace with the development of business expectations. The hiring of additional personnel is hampered by a growing lack of specialists. The risk has reached its highest level since the beginning of the surveys in 2010 in spite of increased wages. In addition to minimum wage, this is a major reason, why the labor cost risk is at an all-time high. Increase in the headcount but the shortage of skilled workers is still acting as a brake The improvement in the employment intentions results from the decline in the number of companies that assume that they will have to reduce the size of their workforce (twelve percent, beginning of 2015: 14 percent). While 17 percent of businesses are still planning to expand the size of their staff, 71 percent are expecting their workforce to remain the same. The current balance of the employment intentions has risen by two to five points, just failing to reach the level of the early summer of 2014 (six points). On balance, the increase in employment is continuing in 2015 i.e. the tenth year in succession. Employment expectations are not following the general improvement in the general business prospects at the same speed (balance increase by two compared to six points). Of the companies with improved business prospects, 35 percent state that they intend to increase the size of their workforce in the previous survey this figure was 37 percent. In particular, the shortage of skilled workers is attenuating the urge to expand of many companies. At 39 percent (after 38 percent at the beginning of the year), this business risk has reached the highest value since the start of the surveys in In spite of rising wages, companies are having problems finding suitable personnel. Almost six out of ten companies with expansive employment plans (59 percent) consider the shortage of skilled workers to be a key risk to their economic Enterprises' Employment Intentions (in percent) higher about equal lower balance Early Summer Fall February Early Summer Fall February Early Summer

41 DIHK-Survey Early Summer Enterprises' Employment Intentions - in points Saldo long-time-average = development; at the beginning of 2015 this figure was only 55 percent. For this reason the shortage of skilled workers is now well ahead of the economic policy framework conditions (41 percent) and domestic demand (36 percent) in the risk assessment of those companies which want to increase the size of their workforce. Demand across the board The shortage of skilled workers is becoming acute in a number of sectors, where it is the greatest business risk in many cases, for example among the temporary work agencies (82 percent, previous survey: 73 percent), the certified public accountants as well as legal and tax advisors (66 percent, previous survey: 64 percent), among the health and social services (63 percent, previous survey: 59 percent) and in the construction industry (56 percent, previous survey: 54 percent). Employers are searching in particular for those with professional qualifications, although academics are still in demand. The increased demand for additional workers can be taken into account by several measures: by making further use of the hidden reserves, improving the compatibility of family and career (e.g. by means of better all-day care for schoolchildren) and by retaining older employees. Recruiting potential is also being fed by immigration.

42 42 DIHK-Survey Early Summer 2015 Labour costs at record levels Higher costs inducing companies to move abroad Service providers feeling the increasing pressure on costs In the early summer, labour costs remain at the record level of 42 percent in the risk assessments of companies i.e. unchanged since the beginning of the year. Again it is many of the small and medium-sized companies in particular (20 to 200 employees) who see the rise in labour costs as a risk to their business developments (46 percent, beginning of 2015: 45 percent). Wage increases, for example as a result of the minimum wage, collective agreements and in order to alleviate the shortage of skilled workers, still represent a significant burden on companies. Of the companies who intend to employ fewer people than up to now, 53 percent state that the rising labour costs are a risk, with this figure now even rising among service companies to 56 percent (after 53 percent at the beginning of 2015). The increasing risk assessment of labour costs and the shortage of skilled workers are attracting the attention of companies to investing abroad. Foreign investments for cost reasons have now become relevant for 23 percent of companies with commercial activities in other countries (2013: 20 percent). 5 Businesses which want to invest abroad for cost reasons have significantly negative employment plans here in Germany. Of the companies planning larger investment budgets abroad, 36 percent refer to the limited availability of qualified personnel as an obstacle to their economic development here in Germany (2014: 32 percent). Overall, more service providers than ever before consider the development in labour costs to be a risk to their economic development (44 percent of responses, previous survey: 43 percent). At the same time, service providers are having great difficulty coping with the shortage of skilled workers. At 44 percent, this risk has also reached a record level. Among service companies with expansive employment plants, as many as 65 percent consider the shortage of skilled workers to be an obstacle to their economic development far more than for the risk of "economy policy framework conditions" (42 percent) and developments in domestic demand (34 percent). On balance, service companies are somewhat restrained with respect to increasing the number of employees compared to the previous years. Although the balance is now the highest in four years in the sector comparison (balance: six after the previous level of five points), it is now only four points above its average since 2003 in the other branches of the economy the balances are at least seven points higher than the average since The motor of employment is therefore currently faltering to a certain extent. This is also indicated by the fact that in this sector the proportion of companies with expansive plans only corresponds to the average of 18 percent since 1999 in spite of the good general economic climate. In view of the low proportion of planned reductions (twelve percent), hardly any jobs are likely to be lost, although not as many new ones as in previous phases of a good general economic climate will be created either. In the East, where every second service provider considers the labour costs to be the greatest economic risk, the employment intentions in this sector 5 Cf. GCCI survey on foreign investments in manufacturing industry 2015

43 DIHK-Survey Early Summer even remain below the average of all industries for the first time since the fall of 2008 (zero points, in the East as a whole: one point). above all in the transport sector Bringing up the rear: the banking industry Low interest rate environment also a burden on insurance companies Manufacturing industry on an expansionary course Above-average financial burdens are found, for example, in the field of road freight transport. For 61 percent, the labour costs (previous survey: 59 percent) represent a significant challenge to their economic developments in the coming months, followed by 57 percent for the shortage of skilled workers (previous survey: 53 percent). In the aviation field as well, the labour costs are developing into a serious problem (57 percent, beginning of 2015: 47 percent), with the international competition also being intense. The employment balance has fallen by four to minus eight points. Overall, the employment intentions in the transport sector have nevertheless improved on balance from zero to three points, with inland water navigation in particular shaking off its reluctance (balance increase by eight to four points). Furthermore, the significant reduction in personnel of many taxi companies is likely to slow down at least with the balance having increased from minus 38 to minus 19 points. As a result of further cutbacks in its personnel plans, the employment balance in the banking industry has dropped to the lowest value in the cross-sector comparison (from minus 24 to the current level of minus 27 points) meaning that its employment intentions were last at such a low level almost ten years ago. Once more the economic policy framework conditions have turned out to be the greatest business risk, even having risen slightly (82 percent, beginning of 2015: 81 percent). In the cooperative sector the assessment at 86 percent has reached a record level. The increasing demands placed on the credit institutions in conjunction with the regulation of the financial markets, as well as the continuing low interest rates, increasing digitisation and demographic developments mean that adjustments some of them painful have to be carried out regarding the branch structures in particular. In the insurance industry the balance of the employment intentions continues to plummet (balance decline by six to minus nine points). Unlike almost all other sectors, it has therefore fallen below its average since 2003 (minus five points). The sector is worried in particular about demand in view of the low interest rates, investors are searching for opportunities with greater returns on investment. 63 percent of companies in the insurance industry see domestic demand as a risk to their business developments (beginning of 2015: 59 percent). Admittedly, business risk number 1 in the view of the insurers remains the economic policy framework conditions (66 percent). Industrial companies have slightly improved their increase in employment levels from the beginning of 2015 (current balance: three points, previous survey: two points). Here it is above all domestic industry which has caught up slightly with its employment plans (balance: one point after the previous level of minus two points; export industry: rise to four from three points).

44 44 DIHK-Survey Early Summer 2015 Trade catching up again slowly retail trade shaking off its reluctance Construction in search of personnel With a balance increase of four to three points, trade has now become just as expansive in terms of its employment intentions as the manufacturing and construction industries (balances in each case: three points). While traders were even more cautious with respect to personnel last fall and at the beginning of this year, they are now catching up not least because of the good consumption climate. The risk of labour costs is still considered by many traders to be remarkably high (current risk responses 38 percent, previous survey: 40 percent). Among the companies working in the field of the "motor vehicle trade and repairs", the risk of labour costs has risen from 47 to 51 percent the highest value since the beginning of the surveys. In this sector the employment intentions remain below average (balance increase by one to minus three points). Besides the wholesale trade, which is further expanding its plans to increase its personnel not least due to the improved situation with respect to industrial activity (current balance: six points, beginning of 2015: three points), the retail trade is also planning to increase its number of employees. Experience has shown that the current balance of zero points indicates at least a slight increase in employment. After the previous level of minus five points, it has now just failed to reach the level in the early summer of The minimum wage has probably already made its negative effects felt in the field of marginal employment. This has already been included in the responses of the retail traders relating to labour costs (current risk assessment: 43 percent, previous survey: 46 percent), but has not yet been fully digested. In the East, for example, the risk assessment of retail traders concerning labour costs is still well above the average (54 percent). The construction industry intends to further increase its staffing requirements (balance improvement by two to three points compared to the previous year; balance of the previous survey: minus two points). While structural engineering has considerably expanded its employment plans thanks to the positive developments in house building (balance increase by five to six points in the year-on-year comparison; previous survey: minus one point), the recovery in the field of civil engineering is meagre (balance deterioration by ten to minus six points compared to the previous year; previous survey: minus seven points). Public investments, on which the industry depends, are still rather weak. For the construction industry it is becoming increasingly difficult to find suitable workers. With 56 percent of current responses (beginning of 2015: 54 percent), the business risk of the shortage of skilled workers has reached a new high in the construction industry and is now the greatest risk. Almost three quarters (74 percent; previous survey: 68 percent) of construction companies with expansive employment plans now refer to this risk.

45 DIHK-Survey Early Summer IHK-Economic-Surveys The regional business surveys of the 80 Chambers of Industry and Commerce can be accessed at: North East West South