Growth pause rather than structure break How robust is the recovery? Prof. Dr. Michael Hüther Director of the Institut der deutschen Wirtschaft Köln PK Hanover Fair, 19 April 2010 1
Agenda Where we are today Opportunities for industry Risk potential Hanover, 19 April 2010 2
A new quality of downturn New orders for German industry in the 1992-94 / 2001-03 / 2008-10 recessions 100 90 Feb 92 May 94 Dec 00 Mar 03 Nov 07 Feb 10 80 70 60 New orders from within Germany New orders from abroad What we need to explain! 50 Feb 92 MayAug Nov Feb 93 MayAug Nov Feb 94 May Dec 00 Mar 01 Jun Sep Dec Mar Jun Sep Dec Mar 02 03 Nov Feb MayAug Nov Feb MayAug Nov Feb 07 08 09 10 The index value 100 corresponds to new orders for the first month of the respective recession. Source: Statistisches Bundesamt Hanover, 19 April 2010 3
Parallel global recovery takes place through industry! Purchase Manager Index for Industry, 50 = Expansion mark 75 70 65 60 55 50 45 40 35 30 25 GER EU (GER, FR, IT, GB, IRE) USA Japan China Jan Feb Mar AprMayJun Jul AugSep OctNovDec Jan FebMar AprMayJun Jul AugSep Oct NovDecJan FebMar 2008 2009 2010 Sources: IW Köln. Hanover, 19 April 2010 4
Changes to the credit guidelines Results of the Bank Lending Survey (positive values: increased severity of guidelines) 70 60 50 40 30 20 10 0-10 -20-30 -40 JanApr Jul 03 03 03 Loans to small and medium-sized enterprises Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 JanApr Jul 05 05 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 JanApr Jul 07 07 07 Loans to large corporations Oct 07 Jan 08 Apr Jul 08 08 Oct 08 JanApr Jul 09 09 09 OctJan 09 10 Source: Bundesbank Hanover, 19 April 2010 5
Agenda Where we are today Opportunities for industry Risk potential Hanover, 19 April 2010 6
Regional growth Average annual change of GDP from 2001 to 2008, as a percentage 9 8,3 8 7 6 5 4 7,2 5,9 5,4 4,9 4,0 3 2 2,2 1 0 Asia CIS Africa Middle East Eastern Europe World Advanced Countries Source: IMF Hanover, 19 April 2010 7
Asia and Eastern Europe set for growth also in the future Forecast change of the GDP from 2010 to 2014 as a percentage 10 9 8 7 6 5 4 3 2 1 0-1 2010 2011 2012 2013 2014 China India Russia Hungary Czech Republic Poland Turkey Source: IMF Hanover, 19 April 2010 8
Global perspectives for growth in 2010 Change in the real gross domestic product compared to the previous year as a percentage Asia 4,1 5,2 Latin America 2,2 3,8 North America 1,9 2,9 Jun 09 Western Europe 0,3 1,2 Jan 10 Eastern Europe 1,8 2,9-0,5 0,5 1,5 2,5 3,5 4,5 5,5 Source: Consensus Forecasts Hanover, 19 April 2010 9
Specialization in the export of investment goods Relative world market share in the export of investment goods to the emerging markets 20 0-20 -40 GER FR IT ES Euro zone excl. GER -60-80 -100-120 2000 2007 Source: Institut der deutschen Wirtschaft Köln Hanover, 19 April 2010 10
Export success: investment goods / intermediate input German goods exports to the emerging markets (2007, in bill. euro) 70 60 50 40 30 20 10 0 Intermediate input goods (processed) Investment goods (excluding parts / accessories) Investment goods parts / accessories Means of transport parts / accessories Consumer goods Passenger vehicles Commercial means of transport Source: Institut der deutschen Wirtschaft Köln Hanover, 19 April 2010 11
Research as an industrial domain Expenditure by industry in research and development in billion euro 60 50 40 30 20 10 Processing industry Services and others 1) 1,3 1,8 1,5 27,9 27,7 28,4 2,3 31,1 3,6 36,1 4,0 39,8 3,9 4,7 42,7 43,7 5,4 48,1 6,1 53,7 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 1) Agriculture, energy, building sector. Sources: Stifterverband für die deutsche Wissenschaft; Institut der deutschen Wirtschaft Köln Hanover, 19 April 2010 12
Agenda Where we are today Opportunities for industry Risk potential Hanover, 19 April 2010 13
Temporary lack of investment poses an increased challenge for supply side policy A continued lack of investment in equipment (2009: -22 % and 2010: +0.5 %) will make the sunk cost argument less significant. This provokes that, in times of economic recovery, the decision where to produce becomes a more important part of the investment decision. In terms of economic policy, supply conditions take centre stage: Taxes and duties (structure, transparency) Tax concessions to promote R&D Bureaucracy Lack of skilled workforce Availability of resources Hanover, 19 April 2010 14
Challenge: Reliable availability of resources Features Availability Market power Political risk Future relevance Nonsubstitutability Raw materials germanium, indium, baryte, silver, gold, tin, zinc, lead; (fluorite, niobium, nickel, molybdenum, manganese, copper) niobium, platinum group, rare earth minerals, tantalum, magnesium, graphite rare earth minerals, cobalt, lithium, phosphate, tungsten, magnesium, chromium; (platinum group) rare earth minerals, phosphate, tungsten, magnesium, lithium, cobalt, platinum, selenium; (gallium, germanium) rare earth minerals, phosphate, selenium, indium, gallium, germanium, potash salt, graphite, platinum group, chrome, manganese, molybdenum, cobalt Hanover, 19.April 2010 15
The turkey or: how awareness of risk diminishes A turkey is fed every day for a thousand days. Every day, its brain registers that humans take care of its needs, and this realization becomes more entrenched with each passing day. One fine Wednesday afternoon, just one day before Thanksgiving, the turkey is dealt a nasty surprise. Experiences from the past influence our expectations, even though they actually do not apply to the future. Hanover, 19 April 2010 16
The Millennium Bridge London or: How people lose their individuality Opened on June 10, 2000. Only two days later, it had to be closed due to serious and uncontrolled swaying motion. People do not walk in step (uncorrelated risks). If transverse vibrations occur by coincidence, they adjust to each other and attempt to cancel each other out through their own movement. This means that they unconsciously move synchronously and in doing so exacerbate the swaying motion. Hanover, 19 April 2010 17