Just looking at uh the the summary of
what your team have put together visa v
the data. Yes, there has been a slight
sentiment improvement but your
conclusion is the German economy's
recovery still remains weak.
>> Yes. Uh there is a slight improvement
but it's very small. And what we see in
the data if we take a closer look is
that uh companies are telling us the
current business business situation is
really flat. It's not changing. It
continues to be weak. Uh so what's
improving is the expectation component
mostly. Uh and this has been going on
for a couple of months now. Uh so uh it
seems that companies are telling us yes
we do expect the German government to
spend a lot more. We have these debt
financed funds and we'll benefit from
that but that's something for the future
and currently things are not really
improving and that's that's what we see
in the data. So this is companies are
mostly hoping for things to get better
but um if we look at order intake and
other current indicators hard facts we
are not there yet.
>> Yeah I was reading uh somewhere that
another economics research institute
that the number of insolvenies out of
German companies has hit the highest
since 2005. Are there any particular
industries that stand out to you in the
survey that are struggling more than
others?
>> Uh I mean what we see is that some of
the key industries continue to struggle.
The chemical industry, the car industry
uh we also see some positive signs. The
investment goods industry which was uh
in difficulties for some time here
things are improving but again it's
mostly the expectations component. What
they seem to hope is that a lot of
companies will start increasing
capacities to be ready when all this
government spending comes. For instance,
construction companies are increasingly
buying machinery to be ready when the
government spends more. Uh but um as I
said, it's mostly expectations. Um we
have seen difficulties in the
construction industry up to now uh
especially when it comes to building
houses and apartments. Um here you know
this is a sector that has been very weak
uh and continues to be so uh despite
these spending programs.
>> Yeah. Earlier on in the show we were
speaking to my colleague in Brussels
about Vander Lion coming out to to
defend the trade deal that the EU had
agreed with the US. You yourself, you
put up a a a post on X when the deal was
agreed, saying the trade deal is a
humiliation for the EU, but it reflects
the imbalance of power. The Europeans
need to wake up, focus more on economic
strength, and reduce their military and
technological dependence on the US. So,
I take it the EPO Institute is not a fan
of this trade deal. What would you have
been looking for?
Well, uh, what I was trying to say is
it's probably the best we could get. It
really does. It's a humiliation, but it
does reflect the realities of the
imbalance, the power imbalance between
the United States and the European
Union. The European countries depend on
the US for their defense. So, there
wasn't much I think Fondline could do.
Uh, so if you look at this from this
perspective, I think the deal could have
been worse indeed. But that doesn't
change the fact that it's a bad deal. It
just reflects the power imbalance and we
need to work on that. I think it makes
little sense to complain about this deal
or to ask for a better deal if you're
weak. Uh you that's reflected in what
you can negotiate.
>> Yeah. Net net though do you still think
that this trade deal and where we where
we are ending up which is around 15%
with some lack of clarity about specific
industries will that still pose a drag
to the German economy?
>> Well it does pose a drag because it's
worse than what we had before still uh I
think the German economy German
exporters can live with that. Of course
it will be important what happens to the
car industry. That's one of the sectors
where there's still uncertainty. Will
they also get the 15% German companies
will be able to live with that?
Interestingly, what we see in the survey
today is that uncertainty perceived by
firms hasn't declined. One would think,
okay, with the trade deal, companies
will say at least the uncertainty is
gone, but companies don't say that. And
I think that reflects that companies
don't really trust this deal. Uh Donald
Trump has shown repeatedly that he may
change his mind very quickly. And that's
reflected in these numbers. And that
also reduces the value of this deal.
>> Yeah. What about the fiscal backdrop
situation in Germany? The chancellor has
unveiled a big fiscal stimulus that
channelneled towards defense
infrastructure and then of course you
have the big made in Germany initiative
with uh some key industries and industry
players participating looking to
participate and invest. Is that going to
move the needle for the German economy?
I think it will move the needle probably
next year. The question is, is this just
a flash in the pan? Will this be a
short-term effect or will this be
sustainable? And it will only be
sustainable if this is complemented with
structural reforms. Uh Fred has said
that repeatedly. So he wants to uh have
his government enact a couple of
structure reforms, labor market reforms,
deregulation, uh spending cuts to be
able to cut cut taxes further uh to
really get this going. Debt finance,
fiscal impulse is a short-term thing and
for that to translate in a durable
effect, we need these other reforms and
um incurring public debt is relatively
easy politically. the structural reforms
are much more difficult, are much more
demanding and the question is will the
will the government deliver on that side
as well.
Yeah, we had the GDP figures come out on
Friday again disappointing to the
downside with that minus0.3% annualized
figure for the second quarter. In the
absence of the reforms that you speak
of, is there optimism for Germany to
actually start posting positive GDP
numbers in the coming months, coming
quarters?
>> Uh, I think yes, we will see more
positive GDP numbers simply because the
government will spend more. But as I
said, you know, this could be a
short-term effect. Uh, and if if there
are no no further reforms forthcoming, a
lot of that will also go into prices. So
the without structural reforms the
effects will be relatively small and
they will be transitory. So it's really
key that the government comes up with
the structural reforms to complement
this fiscal expansion that then we would
have a promising package.