Over the past 50 years, the German economy has experienced a history of ups and downs, and the once invincible Germanic chariot has faltered and sometimes stopped, and finally regained its momentum with tenacious will.
In a research report released last week, the team of Li Meicen of Caitong Securities reviewed the ups and downs of the German economy in the past 50 years:
Since the 1970s, Germany's GDP has fallen from a single-digit growth rate to less than 5%, and the social welfare market economic system may be the key to the "German disease", the German political cycle dominates the economic policy back and forth, and the focus gradually shifts to the supply side, and after the structural reform in 2003, the "German disease" has taken a turn to achieve stable growth.
Caitong Securities said that the past 50 years have witnessed how Germany has stepped out of the fiscal quagmire and moved forward steadily with a conservative monetary policy, witnessed the global competitiveness brought by "specialization, refinement, special innovation", and the lack of growth momentum caused by slow industrial transformation.
Germany's economy has been turbulent for 50 years
Caitong Securities divides Germany's economic history into the following six stages:
1) 1973-1982: The peak of the construction of the welfare society
In the leading stage of government regulation, GDP dropped from 5% in 1973 to 1% in 1982, CPI first from 7% → 2.7% in 1973~1978, and then from 2.7% →5% in 1979~1982; fiscal deficit, monetary tightening, from a surplus of about 10 billion euros in 1973 to fiscal deficit expansion, the scale of fiscal deficit in 1975~1981 remained at the level of about 10 billion euros, and the growth rate of M3 increased from about 12% in 1973 halved to 6% in 1981.
2) 1983-1990: Market-oriented economy
In 1983~1990, after the new Kohl government came to power, the supply-side reform was implemented, the GDP rebounded from -0.4% to +5.3%, and the CPI center dropped from 5.2% to 1.8%; the fiscal deficit situation improved, and the deficit scale converged from about 9 billion euros to 200 million euros in 83~86; the monetary policy tone was loosened first and then tightened, and the actual M3 supply was stable at 4%~8% in the early stage, and soared to 12% after unification in 90 years.
3) 1991-2002: The "disease of reunification" between Germany and Germany
In 1998, after the full-scale recession, the red-green government of the SPD came to power under the pretext of "combining supply and demand". GDP fell from +5.1% to negative territory, the CPI pivot fell from about 4.5% to 1.4%, the fiscal deficit deteriorated sharply, and the deficit in 1995 increased nearly 20 times from 90 years to -160 billion euros, and the monetary policy tone was first tightened and then loosened, and the real M3 growth rate fell from 10% to 5%.
4) 2003-2007: Great strides in the reform of the social system
Schröder's second term lasted until the Merkel era, and social welfare reforms were unprecedented. GDP continued to rise from -0.7% to about +3%, CPI grew moderately from +1% to +2.3%, the fiscal deficit improved after Merkel came to power, and the deficit in 2007 shrank by nearly 2/3 compared with 03 to -20 billion euros; the monetary policy tone was loosened first and then tightened, and the real M3 growth rate showed a V-shaped trend, 8% in 03→ 1% in 04→ 10%+ in 07.
5) 2008-2012: Responding to the crisis
In Merkel's second term, the global financial crisis and the European debt crisis came one after another. GDP between -5.7% and +4.2% showed an "inverted N" trend, CPI trend is similar to GDP, operating in the range of +0.3% to +2.6%; fiscal deficit widened between the two crises, reaching 79 billion euros in 2010, but improved significantly in 2011~2012, with a surplus of 2.2 billion euros in 2012; monetary tightening first and then loosening, M3 growth center showed a V-shaped trend, +12% in 2008→ -2% at the end of 2009 at the beginning of 2010→ +6% in 2012.
6) 2013-2023: Industry 4.0
From Merkel's third and fourth term to Scholz's assumption of power, the German economy ushered in the new crown period after seven years of steady growth. GDP growth is positive except for 2020, of which the growth rate in 2014~2019 is stable at about 2%, and the CPI is in the range of 0~1.7% in a "W" shape, gradually climbing to 7% in 2021~2022; the fiscal surplus continues to expand in Merkel's third term (2013~2018), and the deficit scale reaches more than 100 billion euros per year under the impact of the new crown in 2020~2022; the currency maintains an accommodative tone 22 years ago, and the M3 growth rate is about 6%.
50 years of capital market changes
Caitong Securities pointed out that since the 1970s, in terms of the absolute increase in major types of assets, long-term holding of German stocks or German bonds is preferred, and German stocks have risen nearly 10 times from 1973 to June 2023, and the yield of German bonds has fallen by more than 600BP.
The major categories of assets were ranked according to the gains, and the German stock > exchange rate > real estate, up 969%/63%/17% respectively. According to the six major economic stages, German stocks outperformed in most stages, and the mark continued to rise driven by the collapse of the Bretton Woods system and the Plaza Accord.
7 rounds of ups and downs of German stocks:
Looking back on the 50 years of German stocks, global economic fluctuations, government iteration and industry development and other factors have caused it to experience 7 rounds of ups and downs - the oil crisis, the disease of German unification, the bursting of the Internet bubble after 2000, the global financial crisis, the new crown epidemic caused the stock market to fall, the transformation of industrial structure, and the stimulus of government policies to promote the stock market.
The 50-year bull of the German bond market: The trend of German bonds is mainly dominated by monetary policy, and secondarily by economic reform and the macroeconomic environment.
From 1974 to 1982, two oil crises were under pressure, monetary easing was bullish in the bond market from 1981 to 1986, and reinvigoration after German reunification in 1990. Subsequently, with the subprime mortgage crisis and the European debt crisis, the bond bull market lasted for 30 years until the global epidemic arrived.
The ups and downs of the German exchange rate: the German exchange rate rose 4 times and fell 4 times, and the global economic situation, intra-European differences, and monetary policy are the three main lines.
Four of the appreciations were actively promoted by the improvement of the global economy and monetary policy, and the four depreciations were related to factors such as the global economic crisis, the European debt crisis and the drag of European member states.
The German housing market is stable and progressive: economic recovery, policy changes, the process of reunification and international economic fluctuations have all profoundly affected the trend of house prices.
The abolition of housing rationing in the early 1970s ushered in market-oriented reforms, but the oil crisis and the bursting of the reunification bubble put pressure on housing prices. With the gradual reversal of the German economy, housing prices have also slowly recovered after 2009 and gradually returned to stable growth.
50 years of changes in German stocks: the new economy is gradually replacing the old economy
In the past 50 years, German stocks have risen more than 10 times, finance and technology have led two rounds of US stock bull markets, and consumption and medical care have resisted pressure in the crisis. High-end manufacturing continues to lead the way, and the proportion of TMT has gradually increased since its rise in the 1990s.
The change in the market capitalization structure of the German stock market shows that the new economy (technology + consumer healthcare) is gradually replacing the old economy (industry, materials) and becoming an important part of the German stock market.
The main views of this article come from Caitong Securities, the original author: Li Meicen, Xu Chenyi, the original title: "50 Years of German Turmoil: The Thorny Road of the Germanic Chariot - Global Trade and Industry Going to Sea"
Li Meizen SAC Certificate Number: S0160521120002
Xu Chenyi SAC Certificate No.: S0160523030003
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