Investors

Although, the economic engine that investors should really hope for remains Germany, which represents approximately 25 percent of the EU’s total GDP. Quite interestingly, German Business and Climate Minister Robert Habeck presented the German government’s expectations for the country’s economic growth in 2022 at the same time as Jerome Powell announced the even faster rising rates.

In Germany, the official estimate is now a GDP growth of 3.6 percent this year, though many countries will experience an extraordinary positive GDP growth effect in 2022, which is related to Covid-19. Moreover, the governments of many countries are notoriously optimistic about their own country’s economic prospects, this also applies for Western countries.

During the Covid-19 period, Germany has not implemented reforms that can give an extra boost to the economy when the country reopens completely. I am concerned that German growth is falling back to the level it was at before the Covid-19 crisis broke out. Unemployment is already down at 5.2 percent. Before the crisis it was 5.0 percent. Despite the very low unemployment rate before the Covid-19 crisis, the annual GDP growth rate fell to 1.1 percent ahead of 2020. In 2020, the GDP growth moved into strongly negative territory, but it should not be forgotten that already in the first quarter of 2020 many indicators indicated that the GDP growth was moving further down in speed, dangerously close to zero growth, which was before Covid-19 emerged.

It will be extremely unfortunate if the economic growth in Germany drops to such a low level again — it will also be a surprise to many investors.

In the new government’s economic program, there is one significant initiative, namely a significant increase in the minimum wage. For those workers who receive the ordinary minimum wage, the reform means a wage increase of approximately 10 percent, measured from 2021 to 2022. However, it must be said that many salary groups have already had a higher minimum wage for a number of years. Many who are paid according to the lowest minimum-wage rate feel the higher energy prices to a particular degree, and therefore, the positive macroeconomic effect is partially diluted. The result is that the consumer confidence in Germany plummeted in January, however, consumers will certainly be more optimistic when the Covid-19 restrictions are lifted, though I argue that it will be difficult to spot particularly strong stories in the German economy.

If an investor regards macroeconomic tailwinds as important for the stock markets, then I argue that the government in Berlin must come up with additional economic growth packages before investors increase the allocation to the eurozone. I doubt it will happen and it might be better to live with the monetary headwind on the American side of the Atlantic.