Goldman Sachs Asset Management’s view on Germany

The German machine seems to have entered 2012 forgetting that it is in the middle of a major financial crisis.

On top of reporting improved purchasing managers indices, which followed another higher-than-expected IFO, unemployment has now dropped to a 20-year low.

Yes, a 20-year low.

The mood within Germany appears to be quite buoyant – nobody appears to have told them that they are supposed to be heading for a recession.

What is behind this? I think it is pretty simple. Germany is very well plugged in to the BRIC story and the broader growth markets. While some big German corporations reported softer earnings from China in the fourth quarter, there are so many signs that Germany continues to better position itself for more success.

Amongst the most interesting emails I received in the past fortnight was an email from Lufthansa informing me that they will be starting direct flights to both Shenyang and Qingdao, which brings the number of direct flights into China to six.

If China continues to make progress towards a ‘soft landing’, Germany seems pretty well placed to benefit.

I visited Mannheim the week before last. We hosted a dinner for about 130 investors, and at the end of my brief remarks, I decided to conduct an impromptu survey about the EMU.

I asked for a show of hands on a few questions:

1. The EMU will not exist by the end of 2012? No hands raised.

2. Greece will leave the EMU by the end of 2012? Seven hands.

3. Greece will leave the EMU before the end of 2020? Half the room.

4. Portugal to leave the EMU? UK to join the EMU? Quite remarkably, a few more hands were raised in favor of the UK joining the EMU …(not many hands raised in general to either – but you get the gist).

So, it doesn’t seem as though Germans think the EMU is as inevitably doomed as many outside observers seem to think. We shall see who is right.

Jim O’Neill is chairman of Goldman Sachs Asset Management.


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