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Technology and tax cuts

Technology and tax cuts can bail Germany out, in case of an economic downturn NEWS AND MARKETS Last quarter of 2018 and the first quarter of 2019 has not been a very positive one for Germany, but nevertheless, 2019 still looks to be a positive year as Industry 4.0 and similar advanced technologies start to penetrate deeper into German manufacturing set-up. Going forward, these technologies will become the new growth drivers of German manufacturing industry. Traditionally seen as the powerhouse of Europe, Germany’s economy is starting to cause concern with uncertainties over global trade and the manufacturing industry. In January 2019, the European Commission revised the growth forecasts for the country and is now expected to grow by 1.1 % this year, from a previous forecast of 1.8 %. Germany is Euro zone’s largest economy, this means that any deceleration will likely be bad news for the rest of the Europe as well. The Commission also lowered its prospects for the Euro area as a whole. The region is now set to grow by 1.3 % this year, from a previous forecast of 1.9 %. The slowdown was caused mainly by factors, like global trade tensions and weakening exports growth due to slowdown in emerging economies including China. Recent data from the German statistical office shows that the country posted a growth of 1.5 % in 2018, as compared to 2.2 % in the previous year. German industrial production also declined by 0.4 % monthon-month in December — following a fall of 1.3 % in November, making this the fourth consecutive month of decline. This has been the weakest growth rate in five years. Also, factory orders data showed a 1.6 % decline in December. While we have to brace ourselves for another weak quarter in the first quarter of 2019, there could be some positive momentum in the spring. With serious trade negotiations between the U.S. and China under way, and UK’s Brexit on-going negotiations, chances Author: Sushen Doshi, International Correspondent for World of Industries are that progress on these issues will be the game changer that could turn the sentiment around. This would bring around a humble return in growth momentum in Germany and the euro zone. In case of an economic downturn, the German government is working on bringing in tax cuts and increasing government spending. Though many experts have discouraged general tax cuts for Germany in recent years, due to high state debts, the finance ministry believes that such measures would be justified as a means against a possible recession. Speaking to a German newspaper, the Finance Minister Olaf Scholz said, “The good times in which the state kept taking in more taxes than expected are coming to an end,”. From rags to riches After German re-unification, the economic performance of western Germany was initially strong. In fact, GDP grew at a solid rate of 5 % until 1991. However, it deteriorated by 1992 and remained dismal for the remainder of the 1990s. During this time, the unemployment rate nearly doubled, as GDP growth averaged a meager 1.5 % per year. In 1994, the Germans feared that the unification of the two Germanys had failed. By 1999 and 2000 Germany was tagged as “the sick man of Europe” and in 2003 the German economy was in deep recession. Since 2004, Germany has emerged from its economic sluggishness with an exceptional performance. In recent years, people commonly interpret the rebirth of the German economy as a new Wirtschaftswunder, an economic miracle which has brought back the prestige and diplomatic assertiveness that can determine the fate of the rest of Europe. Over the past few years, other European countries like Sweden and France have also had comparable growth rates. But the German exception lies in having permanently transformed its economic model in line with the global challenges. The transformation has also allowed the achievement of the traditional shared goals of the German society – full employment and low income inequality – which have always characterized the social market economy. German governments, both state and federal, have also accompanied the economy’s internationalization process which was initiated by large companies and major financial institutions. The common political analysis behind this is that a population of around 80 million, which produces more than 5 % of global GDP, can 12 WORLD OF INDUSTRIES 2019

maintain its standard of living only by tying its growth to that of countries and bringing 6 billion people out of relative poverty. For this reason, the entire German production system had to and was able to strengthen its export orientation, while facing the major geopolitical changes that have directly involved the country: the German reunification, the European monetary unification, Eastern Europe opening to international trade. The reality is that, the process of transformation of German economy was born long before becoming a political project. It was born under the impulse of a group of industrial and financial players who were subject to intense pressure of global competition. Only later, an intensive set of government-led economic reform programs accompanied the transformation of production, allowing the entire economy to benefit from their acquired competitive success. Export scenario for Germany In 2017 alone, Germany shipped nearly $ 1.5 trillion worth of goods around the globe. In dollar terms it reflects a gain of more than 7.5 % from the previous year. In the first nine months of 2018, Germany exported goods worth $ 1.2 trillion. This 9-month metric puts German exports on track for an annualized $ 1.5 trillion estimated for all of 2018. From a continental perspective, around two thirds of German exports by value were delivered to other European countries, approximately 18 % were sold to Asian countries and 10 % to North America. With Germany’s population of nearly 80 million people, its total $ 1.5 trillion in 2017 exports translates to roughly $ 18,000 for every resident in the country. The top industry sectors driving the exports were as follows: n Automobiles and components: $ 250 billion n Machinery including computers: $ 245 billion n Electrical machinery, equipment: $ 150 billion n Optical, technical, medical apparatus: billion n Aircraft and aviation products: $ 40 billion Germany’s focus on advanced manufacturing technologies For the next 5-10 years, advanced manufacturing technologies are set to provide the best export potential for industry sectors such as machine tools, industrial machinery, robotics, information and communication technology, process control instrumentation and electronics equipment, additive manufacturing and advanced materials. On the domestic front as well, till 2025, more than 80 % of German manufacturers plan to invest more than $ 100 billion every year into smart manufacturing technologies. Germany is the fifth largest robot market in the world with about 20,000 industrial robots being used in industries such as automotive, electrical and electronics, metal working, chemical, plastics, and the food industry. Overall the robotics and automation sector in Germany saw a successful period with sales figures reaching nearly € 15 billion in 2017, posting a growth of 13 %. All three sectors of German robotics and automation were on a strong growth course. The machine vision sector experienced a growth of around 17 % taking its annual turnover to € 2.6 billion. The German robotics sector also experienced a dynamic period of growth with sales rising by 17 % to € 4.2 billion. The largest sub-sector of German robotics and automation, the integrated assembly solutions saw a sales growth of 9 %, reaching a new record of € 7.6 billion. After the enormous investments of the electronics and automotive industries in 2016-17, order intake in the first half of 2018 was no longer as dynamic as the previous years, due to a normal cyclical effect. In addition, political developments with protectionist tendencies in North America and Asia had a dampening effect on the willingness to invest. This has given the robotics and automation companies a breathing space and to reduce the order backlog. A high order backlog and the extended delivery times for systems are reasons for a partial shift in sales to 2019. The transformation of the powertrain in particular requires new technological competencies and manufacturing solutions. New components such as the battery or the hybrid drive require new automation solutions with diverse measuring and testing tasks. With Asia’s electronics sector undergoing heavy automation, the demand for German products will be on the rise in the coming years. Further growth opportunities are also seen in the metal, plastic, medical technology and the food and packaging industry. A growth rate of at least 5 % is expected again in 2019, provided that the political and economic situation does not hinder investments in automation. Photo: fotolia z WORLD OF INDUSTRIES 2019 13