Consequences of the US-subprime Crisis Dampen Economic Growth in Germany
Wirtschaft im Wandel,
1. Sonderausgabe
2008
Abstract
The crises of the housing and the financial sector in the US and the turmoil on worldwide financial markets have clouded the prospects of the world economy for this and next year. In particular, conditions for financing consumption and investment will worsen. In addition, the price hikes for energy and food entail a redistribution of purchasing power from ordinary households to the producers of these goods. As a consequence of all this, the economy in the US will be more or less stagnating this year, and world growth will slow down. Firms in the nonfinancial sector, however, are generally in good financial condition, policy in the US takes strong measures to contain the crisis, and growth dynamics in emerging markets economies appear to be robust enough to withstand the dampening effects. In Germany, the economy is, in spite of the adverse effects from abroad and in particular the strong appreciation of the euro, still in good shape. Apparently, the economy has become more robust in the past years, partly due to increased competitiveness of German producers. Still, economic expansion will slow down, with annual growth rates of 1.8% for this year and 1.4% for 2009.
For the first time the forecast of the institutes comprises a medium term projection. For this, the potential growth rate of the German Economy is estimated to be 1.6%. As to policy recommendations, the institutes advise against the establishment of minimum wages in Germany, because they fear adverse effects for employment. In this point the IWH and its partners take a different view.
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An Assessment of Bank Merger Success in Germany
Michael Koetter
German Economic Review,
No. 2,
2008
Abstract
German banks have experienced a merger wave since the early 1990s. However, the success of bank mergers remains a continuous matter of debate.This paper suggests a taxonomy to evaluate post-merger performance on the basis of cost and profit efficiency (CE and PE). I identify successful mergers as those that fulfill simultaneously two criteria. First, merged institutes must exhibit efficiency levels above the average of non-merging banks. Second, banks must exhibit efficiency changes between merger and evaluation year above efficiency changes of non-merging banks. I assess the post-merger performance up to 11 years after the mergers and relate it to the transfer of skills, the adequacy to merge distressed banks and the role of geographical distance. Roughly every second merger is a success in terms of either CE or PE. The margin of success in terms of CE is narrow, as efficiency differentials between merging and non-merging banks are around 1 and 2 percentage points. PE performance is slightly larger. More importantly, mergers boost in particular the change in PE, thus indicating persistent improvements of merging banks to improve the ability to generate profits.
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In Focus: Migration Behaviour of East Germans
Alexander Kubis, Lutz Schneider
Wirtschaft im Wandel,
No. 4,
2008
Abstract
During the transition period, East Germany faced a strong out-migration towards the western part of Germany. Between 1989 and 2006, the net loss of internal migration in East Germany accumulated to 1.7 million people. Regarding the age distribution of these internal migration flows, it is shown that the net losses are primarily – over 50% – caused by young people aged 18 to 30 years. Besides the most important trend of East-West-migration, substantial regional differences can be observed. In the 1990s, the surrounding areas of large cities in East Germany benefited from suburbanisation. Afterwards, this trend has come to an end so that agglomerations in East Germany currently experience in-migration. However, peripheral regions faced strong negative net migration rates during the entire transition period.
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German Economic Growth in 2008: Temporary Slow Down
Wirtschaft im Wandel,
No. 4,
2008
Abstract
World economic growth has slowed in the first months of 2008. The main causes are the crisis in the US housing sector and the turmoil in the financial sector in general, the spreading expectation of a recession in the US, and sharply rising prices for energy and food. The German economy, though, is still expanding healthily, with strong investment and export activities. Private consumption, however, shrank at the end of 2007. In 2008, while favorable labor market conditions will improve job security and thus the propensity to consume, real incomes will not rise by much due to the risen inflation rate; consumption will again expand only modestly this year. A slower expansion of the world economy and the stronger euro will dampen exports and investment. All in all, growth will slow to (working-day adjusted) 1.2% in 2008. Chances are good that in the next year, after the negative shocks have faded out a bit, growth will be accelerating again. The East German Economy was on a lower growth path in 2006 and 2007 than the economy in the West, according to recently revised national accounts data. Industrial production, however, is more dynamic in the East. Unemployment rates will continue to decrease faster in the East: as in the rest of Germany, employment is growing, and, contrary to what happens in the West, the labor force is shrinking.
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East German Economy: Demand Push Stronger than Structural Deficiencies
Wirtschaft im Wandel,
No. 7,
2007
Abstract
In 2006, growth of production was surprisingly strong in Eastern Germany. The structural deficiencies there would have suggested a slower pace. In particular, linkages with national and international business cycles have been underestimated. To a large part, the reason why output grew by 3 per cent did not come from Eastern Germany itself, but from the Old Länder and from abroad. In the New Länder, the strong upward swing in investment activity stimulated the economy. However, owing to a small increase in total income of private households, their purchasing power lagged behind.
The improved ability of East German firms to absorb cyclical impulses from exports and from Germany’s general investment activity proved to be a crucial factor. In particular, the endowment of workplaces with modern production facilities as well as the continued reduction in the disadvantages with respect to cost-competitiveness in the tradable goods sector were beneficial. The labour cost advantage compared to West German competitors increased further while the disadvantage compared to those from Central and Eastern Europe decreased.
Benefiting from these factors, economic activity in Eastern Germany will grow faster than in the Old Länder as long as the upswing in Germany and abroad remains strong. In 2007 and 2008, investments – especially in equipment – and exports will be the driving forces again. For exports, the strongly expanding markets in Central and Eastern Europe as well as in Russia will gain in importance. As income and employment prospects improve, private consumption will support the growth in production. Registered unemployment should decrease below the 1-million threshold.
Manufacturing will remain the primary force of the upswing; its advantages in production costs will not vanish as long as, even in presence of scarcity of skilled labour, salaries and wages do not increase more than in Western Germany. In the wake of robust economic growth, the New Länder will make further progress in catching up with respect to production and income.
Companies will regain support from the banking industry. Yet, investment capital still stems from public funding programmes to a non-negligible extent. In the medium run, access to credit will ease as a result of further improvements in the firms’ net worth position. However, dependency on internal funds remains high and exposes companies to comparatively strong cyclical risks. In an economic downturn, the structural deficiencies of the East German economy will impair economic expansion.
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Die Lage der Weltwirtschaft und der deutschen Wirtschaft im Frühjahr 2007
Wirtschaft im Wandel,
1. Sonderausgabe
2007
Abstract
In spring 2007, the global economy remains robust. While growth rates have declined slightly from last year, as business activity in the US has slowed, they continue to reflect an upswing, which by now has held on for a notably long time. Especially the developing and emerging countries have been raising output very fast, due in part to their increasing role in the international division of labour. In the industrialised economies, on the other hand, the current recovery has not been remarkably strong. So far the slowdown in the US economy has not spilled over to other regions and the Euro Area as well as Japan continue to expand at a high pace. Here expansive monetary policy provided a notable support. Buoyant financial markets stimulated the world economy additionally, even though market volatility has increased since the end of February. The US central bank’s current concern with inflationary risks keeps it from loosening its slightly restrictive monetary policy. It will be the second half of the year – when price pressures have eased – until the Fed makes its first rate cut. The ECB, on the other hand, has been preparing financial markets for a further increase in interest rates by summer. In 2007 and 2008 the growth disparities in the industrialised countries will diminish. On one hand, the upswing in the Euro Area will start to moderate, as fiscal policy hampers business activity and monetary policy will not stimulate anymore. On the other hand, the US economy will slowly gain pace from summer onwards; the emerging markets will continue to develop in a highly dynamic fashion. World-GDP in this and next year will likely rise by about 3 ¼ % in 2007, which is still faster than in the average of the last ten years. World trade will rise by 7 ½ % in the coming two years. An oil price of 65 US-Dollar and an exchange rate between the Euro and the US-Dollar of 1.32 were assumed for both years 2007 and 2008. The real estate market in the USA continues to be a risk for...
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FDI versus exports: Evidence from German banks
Claudia M. Buch, A. Lipponer
Journal of Banking and Finance,
No. 3,
2007
Abstract
We use a new bank-level dataset to study the FDI-versus-exports decision for German banks. We extend the literature on multinational firms in two directions. First, we simultaneously study FDI and the export of cross-border financial services. Second, we test recent theories on multinational firms which show the importance of firm heterogeneity [Helpman, E., Melitz, M.J., Yeaple, S.R., 2004. Export versus FDI. American Economic Review 94 (1), 300–316]. Our results show that FDI and cross-border services are complements rather than substitutes. Heterogeneity of banks has a significant impact on the internationalization decision. More profitable and larger banks are more likely to expand internationally than smaller banks. They have more extensive foreign activities, and they are more likely to engage in FDI in addition to cross-border financial services.
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Inflation and relative price variability in the euro area: evidence from a panel threshold model
Dieter Nautz, Juliane Scharff
Bundesbank Discussion Paper, No. 14/2006,
2006
Abstract
In recent macroeconomic theory, relative price variability (RPV) generates the
central distortions of inflation. This paper provides first evidence on the empirical
relation between inflation and RPV in the euro area focusing on threshold effects
of inflation. We find that expected inflation significantly increases RPV if inflation
is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the
intermediate regime, however, expected inflation has no distorting effects which
supports price stability as an outcome of optimal monetary policy.
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Signaling Currency Crises in South Africa
Tobias Knedlik
IWH Discussion Papers,
No. 19,
2006
Abstract
Currency crises episodes of 1996, 1998, and 2001 are used to identify common country specific causes of currency crises in South Africa. The paper identifies crises by the use of an Exchange Market Pressure (EMP) index as introduced by Eichengreen, Rose and Wyplosz (1996). It extends the Signals Approach introduced by Kaminsky and Reinhart (1996, 1998) by developing a composite indicator in order to measure the evolution of currency crisis risk in South Africa. The analysis considers the standard suspects from international currency crises and country specifics as identified by the Myburgh Commission (2002) and current literature as potentially relevant indicators.
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A method to evaluate peripheral retail locations considering as example the shopping area ‘Nova Eventis’
Alexander Kubis, Maria Hartmann
Wirtschaft im Wandel,
No. 6,
2006
Abstract
Der Strukturwandel im Einzelhandelsbereich führt zur Entstehung peripherer großflächiger Einzelhandelszentren. Deren Genehmigungsfähigkeit bedingt die Notwendigkeit einer sachlichen Prüfung ökonomischer Auswirkungen potentieller (neuer) Standorte. Mit diesem Beitrag wird eine geeignete Methodik zur Beantwortung dieser Problematik vorgestellt. Das entsprechende Vorgehen, das auf einem probabilistischen Gravitationsmodell beruht, wird eingehend am Beispiel einer Analyse für den Standort Nova Eventis in der Region Halle-Leipzig illustriert. Die empirische Basis stellen 1. eine Erhebung der Einzugsbereiche mittels „Licence Plate Analysis“ (PKW-Erhebung), 2. die einzelhandelsrelevanten Kaufkraft (GfK), 3. eine Distanzmatrix zwischen Kauf- und Wohnorten sowie 4. Angaben der Verkaufsfläche und absoluten Besucherzahl der einzelnen peripheren Einkaufszentren der Region dar. Aus der Analyse wird deutlich, daß die Lage (Distanz vom Kunden) und Größe (Verkaufsfläche) entscheidende Determinanten für die Einkaufswahrscheinlichkeit sind. Unter den gesetzten Annahmen kann ein Kaufkraftabfluß von rund 250 Mio. Euro p. a. aus den umliegenden Landkeisen nach Nova Eventis bestimmt werden. Mit der im Beitrag vorgestellten allgemeinen Methode wird die Möglichkeit eröffnet, ökonomische Auswirkungen der Ansiedlung peripherer Einzelhandelsstätten hinsichtlich der Verlagerung von Kaufkraftflüssen zu prognostizieren. Ausgehend von der Analyse der Kaufkraftströme der bereits bestehenden Einzelhandelsstätten wird auf die Auswirkungen des potentiellen Standortes geschlossen. Damit stellt das hier vom IWH vorgestellte Instrumentarium eine praktikable Entscheidungshilfe sowohl für die Genehmigungsbehörde als auch für das sich ansiedelnde Unternehmen dar.
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