Cautious optimism for Germany’s outlook in 2015

Berlin bundestagWhile the German Dax Index closed the first week of December at an all-time high, the Bundesbank has halved its forecast for economic growth next year to 1%, leading to

mixed opinions about German economic progress.

Robert Smith, investment manager of the Baring German Growth Trust at Baring Asset Management remains optimistic. He says that, despite mixed economic data from Germany knocking business confidence in recent months, the underlying prospects are good and improving conditions support a positive outlook for the equity market.

He says that order numbers from German companies are robust, unemployment was at a record low of 6.6% in October, and the fall in global oil prices should benefit Germany as a non-energy producing country.

"We believe the on-the-ground business conditions alone are sufficiently strong to see the German equity market rise above the recent peak and higher still in 2015," he says, citing the small-cap segment of the market as the area with the greatest value and growth opportunities.

At Axa Investment Managers, Chris Iggo, chief investment officer for global fixed income, also recognises the positive business conditions, noting that German factory orders for October were "much stronger" than expected, showing a 2.5% jump for the month.

He adds that lower oil prices, some adjustment in currency rates and continued corporate profitability could help to boost global trade and investment.

However, Iggo also comments that, in the fixed income market, German bonds have returned 9% over the last year, and achieving the same over the next twelve months will be challenging. "The relative risk-returns don't look attractive," he says.

In a closed-end funds report, Investec Asset Management shows a cautious approach to the outlook for Germany. The firm says that October's figures for German industrial production were "on the disappointing side", with only a 0.2% monthly increase, against consensus estimates of a 0.4% rise.

Investec also reiterates concerns about September's production figures – which were revised down to 1.1% from previous estimates of 1.4% – but says that a 0.1% increase in GDP over the third quarter of this year means Germany's start to the present quarter was "reasonable".

In September, the German fund industry saw strong inflows, hitting a 14-year high with a record €71.2 billion. However, one Dax exchange-traded fund accounted for a significant €2.8 billion of the total outflows.

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