Market outlook

Commerzbank: Backlog in investment drives German growth in 2014

GermanyAccording to Commerzbank, the upswing in Germany is widely supported with growth in investments. Increasing fluctuations in equity markets will give investors buying opportunities in German stock markets.

Commerzbank Economic Research expects a solid economic growth of 1.7 percent for 2014 in Germany following just 0.4 percent in the current year.

According to Commerzbank economists, the euro zone has turned a corner in the sovereign debt crisis, and will grow in 2014 for the first time in three years. However, with a growth rate of 0.9 percent, the euro zone will remain far behind Germany, with France and Italy likely to disappoint.

Today at the launch of economic forecasts in Frankfurt, Commerzbank Chief Economist, Joerg Kraemer commented: ”The upswing in Germany is widely supported with growth in investments, exports and private consumption.” However, growth will be fuelled more and more by the zero interest rate policy of the European Central Bank (ECB). ”Even if consumer prices rise only moderately, it must not be ignored that the loose monetary policy gives stock markets and housing prices in Germany an artificial boost,” said Kraemer.

The main risks for the economy arise from the gradual exit of the U.S. Federal Reserve from its ultraloose monetary policy.

In Germany, the roll back of the successful reforms of ‘Agenda 2010’ may negatively affect economic growth but only several years in the future, according to Kraemer. For 2015, he expects a GDP growth rate of two percent for Germany while the euro area may achieve just half as much growth.

In contrast, the U.S. is expected to return to its former strength, with growth rates of 2.8 percent (2014) and 3.0 percent (2015). ”America has helped itself out of the crisis. Now, the economy is free to pick up speed,” said Kraemer. This also allows the Fed, as the first major central bank, to exit from the ultra-loose monetary policy and to reduce the purchases of government bonds in the spring. This will help the dollar against both, the euro and the yen.

According to Commerzbank, investors should cautiously consider further investment in the equity markets.

”It is not too late to jump on the train,” said equity strategist Andreas Huerkamp. He continued: ”It is likely we will see an increase of price fluctuations in 2014 as a result of a gradual exit of the Fed from its ultra-loose monetary policy.”

This in turn offers investors the opportunity to take advantage of more favourable entry prices to buy stock after setbacks. Fundamentally, DAX stocks remain attractive with an average dividend yield of 2.8 percent, and as 18 of the 30 DAX companies may uplift their dividends. Huerkamp expects the Dax in total to rise to 10,200 points by the end of 2014; in the meantime sporadic corrections to a level at 8,800 points are possible.