[...]Germany IS About To Have Its Worst Recession Since WWII | afem | A Few Euros More | More European Opinion[...]…

[...]Germany IS About To Have Its Worst Recession Since WWII | afem | A Few Euros More | More European Opinion[...]…

The World Bank certainly don’t see the kind of uptick in investment that you are talking about this year.

Foreign direct investment in developing nations will drop by $180 billion, or 31 percent, this year as a global recession prompts multinationals to cut spending on factories and mines, according to the World Bank. Foreign direct investment fell an estimated 10 percent in the developing world in 2008 and will cool further this year, the United Nations said in its 2009 outlook. FDI, which typically involves spending on plant and machinery or the purchase of a controlling interest, accounted for 38 percent of inflows into emerging markets in recent years, compared with 10 percent for investment by funds and 54 percent for loans, according to Morgan Stanley estimates.

Rio, the third-largest mining company, this month postponed a $2.15 billion expansion of an iron-ore mine in Brazil. Honda, Japan’s No. 2 automaker, delayed construction of a $100 million factory in Argentina and has shelved expansion plans in Turkey and India. Hitachi Construction Machinery Co., the world’s largest maker of giant excavators, froze a $1 billion plan to expand production in China and other emerging markets. “I’ve never before experienced seeing sudden, simultaneous drops in worldwide demand,” Hitachi Chief Executive Officer Michijiro Kikawa said this month in an interview in Tokyo. “New investment won’t be implemented until we can foresee how the market will recover.”

“Edward, I am probably being overoptimistic (sinful, sorry), but I count on restructuring efforts of Chinese, Indian, and Brazil economies.”

Well, the consensus is more or less with you, so you don’t have to apologise. I just don’t see China kick-starting anything in her present condition I’m afraid – see my post on the Russian GDP indicator, and Brazil will need oil and commodity prices to start to rise (or at least investors seeing the likelihood of them doing so) to get going. India looks like it will muddle through, without too much structural damage, but can’t pull the whole train on its own.

I mean, obviously we will get a recovery, and more or less I agree with you about what it will look like, I just think it is going to take longer than people are expecting, and I’m still not sure what can get the mindset moving again.

Also, Germany is particularly badly placed, due to the over dependence on Eastern Europe. Selling is not just about signing people up, you need sales networks, contacts, people on the ground, plug-ins to government etc.

For example, Spain has few viable export industries at this point, but if it did have more of them the n Latin America would be a gift, since the networks are up and running, and the influence is strong. This is what Germany lacks. It is starting from virtually zero in India (India could be very good for the UK and the US, of course) and was only selling as much to China as it was to the Czech Republic before the roof fell in.

Second possibility is upgrading of information highways, like cable/phone/internet infrastructure, computerization of schools and universities, and alike. In such scenario US and Japanese companies will benefit most. Honestly, I do not anticipate such scenario on the scale meaningful in national GDP numbers.

Third, there is mining. Downturn or not, mines exhaust their reserves pretty fast, and appetite for commodities is cooled, but nowhere seriously destructed in medium turn. Germany and Japan are big in supplying such equipment.

“If BRIC and another dozen of emerging economies will recover (and most probably they will, and quite fast), Germany economy will recover quit nicely.”

Well, I think the BRIC just split in two, since according to the analysis I am just writing China and Russia are among the worst affected in the current depression. So conceptually BRICs as a concept is now history, it is simply size that matters, but population age structure.

Brazil and India are much better, but even they are having a hard time, although the may well lead the recovery when they do start to fire on all cylinders. But just how quickly will quickly be here? Certainly it won’t start in 2009. If Brazil and India can steady up in 2009 they will be doing well. Possibly things will improve on this front in 2010, but these are both areas where up to now Germany has not been especially well positioned, and I expect the US and Japan to get more of the impetus here even when it comes. Germany has been too focused in Central and Eastern Europe, and this will come with a price tag attached.

I see at least a couple of years of hard times and pain for the German economy, and this has downside risk attached.