Brexit, China and a general global slowdown are threatening Germany’s export-led economy. Data from January brought a chill to boardrooms - and to the office of Chancellor Angela Merkel.
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New contracts were down 2.6 per cent month-on-month as the year started, statistics authority Destatis said in seasonally-adjusted figures. That was well short of the modest 0.5 per cent increase forecast by analysts.
The “present ebbing in orders is a sign of a continuing economic slowdown in industry at the start of the year,” the economy ministry in Berlin acknowledged in April.
Officials said the fall was less marked in a two-month comparison, with orders in December-January 0.5 per cent below those in October-November.
Recent months have seen high volatility in orders data as uncertainty over trade tensions and a possible no-deal Brexit, weakness in important emerging markets like China and a slowdown in economic growth have made themselves felt.
January’s data was weighed down by a 4.2 per cent reduction in orders from outside the 19-nation eurozone and a 2.6 per cent fall in business from Germany’s neighbours in the currency bloc.
Meanwhile domestic demand also fell back, by 1.2 per cent. Makers of producer, consumer and capital goods all reported fewer new contracts.
“We need to put the drop in January into perspective,” said Berenberg bank economist Florian Hense. “But it will take some easing of trade tensions, better news out of China and an end to the hard Brexit risk to stop the downturn.
Pain at the banks
The one upside: a tsunami of financial houses exiting the square mile of the City of London for the skyscrapers of Germany’s money centre, Frankfurt.
But thousands of jobs are also at risk in the beleaguered German banking sector unless a successful formula for a merger between Commerzbank and Deutsche Bank can be found.
Berlin has been urging the two Frankfurt firms to explore fusing together to avoid either one being swallowed up by a foreign competitor and to create a muscular player that can finance Germany’s export-driven companies when the good times roll again. The banks have both been grappling with painful restructurings after years of falling profits and for long have been the subject of merger rumours.
Deutsche Bank said it was “reviewing strategic options and confirms discussions with Commerzbank”, adding that “there is no certainty that any transaction will occur”.
Commerzbank said both banks had “agreed to start discussions with an open outcome on a potential merger”.
If they did tie the knot, they would create a European banking behemoth with some €1.8 trillion in assets, close to France’s largest bank BNP Paribas. Deutsche Bank’s market capitalisation is €16.1 billion while Commerzbank’s is €8.9 billion.
Deutsche Bank’s CEO Christian Sewing said in a letter to staff that “we have to assess opportunities as they arise” and that “consolidation in the German and European banking sector is an important topic for us. Our stated aim remains to be a global bank with a strong capital markets business.”
But white collar unions warn that thousands of jobs - perhaps as many as 10,000 - are at risk, whether there is a merger or not.
Minister Olaf Scholz sent up shares in both banks at the close of March by confirming that “there are talks about the situation as it is” between the lenders, with the government a “fair companion” to the discussions.
Critics of a potential deal have pointed to both Deutsche and Commerzbank’s weakened state in the wake of the financial crisis, saying combining two ailing firms would not produce a healthy one.
“Putting two guys on crutches together doesn’t make a sprinter,” Markus Kienle of SdK, a small retail shareholders association, quipped earlier this year.
Commerzbank is still part-owned by the German state, after Berlin had to step in following its 2009 acquisition of troubled Dresdner Bank, and is part-way through a tough restructuring.
Deutsche is also reorganising, and only returned to the black last year after many years spent fighting the financial and legal fallout of its breakneck pre-crisis expansion.
Any merger would have to overcome a number of hurdles – from the marrying of the differing IT systems to differences between management styles, and the market challenges of recapitalising a giant already shaky on its legs before the get go.
Two German unions firmly rejected the idea of a merger between the top lenders. Service workers’ union Verdi said the merger would make the combined banks “more attractive for a ‘hostile’ takeover, for example from France”. It warned that “at least 10,000 further jobs would be in grave danger” on top of thousands already slated to go amid the far-reaching restructuring projects.
Nonetheless, marrying off Germany’s two biggest private banks would fit with Berlin’s new-found fervour to build up such titans.
Economy Minister Peter Altmaier has joined his French counterpart Bruno Le Maire in calling on the EU to relax merger rules and allow the creation of world-spanning businesses, after Brussels rejected a tie-up between Siemens’ rail division and French train-maker Alstom.
European banking supervisors have long urged mergers between lenders to create a more resilient financial sector – but prefer cross-border marriages to avoid bundling national problematic institutions together.
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