Coface Group
Germany

Germany

Population 81.1 million
GDP per capita 47,774 US$
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Synthesis

major macro economic indicators

  2013 2014 2015  2016(f)
GDP growth (%) 0.4 1.6 1.5 1.5
Inflation (yearly average) (%) 1.6 0.8 0.2 1.0
Budget balance (% GDP) -0.1 0.3 0.9 0.6
Current account balance (% GDP) 6.7 7.8 8.3 8.2
Public debt (% GDP) 77.2 74.8 71.4 68.0

 

(f) Forecast

STRENGTHS

  • Solid industrial base (1/4 of GDP)
  • Low structural unemployment and  apprenticeships
  • Geographic diversity of exports
  • Importance of family exporting SMEs (Mittelstand)
  • Integration of Central and Eastern Europe in the production chain
  • Size of the ports of Hamburg, Bremerhaven and Kiel
  • Institutional structure promoting representativeness and consensus

WEAKNESSES

  • Ageing infrastructures
  • Population decline only partly offset by immigration
  • Shortage of engineers and venture capital
  • Extent of dependence on world markets, and in particular European
  • Scale of automotive and mechanical engineering industries
  • Enduring but reducing, lag of eastern Länder
  • High cost of energy and inadequacy of electric grid

Risk assessment

 

Moderate growth driven by consumption

Growth in 2016 should be around the same pace as in 2015. The positive effects of the depreciation of the euro and the fall in energy prices are fading, whilst the slump in the emerging economies should be offset by additional spending associated with refugees. The role of household consumption as the primary contributor to growth will be confirmed. This will be boosted by the continuing expansion in employment, increasing real incomes thanks to low inflation, higher wages because of the tight skilled labour market, increased pensions and tax cuts, as well as the extension of the minimum wage (8.5 euros an hour). The influx of refugees will also make a positive contribution.  This influx is also likely to sustain public spending with the hiring of staff and the construction of social housing. The construction of private homes is expected to continue positive, especially in the major urban centres where prices are rising rapidly, thanks to relatively cheap and easy to access credit. On the other hand however, given the uncertainties concerning the emerging markets, companies will not be increasing their rates of investment. Finally, the contribution from external trade to growth, hitherto slightly positive, will become slightly negative. The growth in exports is vulnerable to changes in the economic outlook in the emerging markets (29% of exports, with 6% going to China) which could not be offset by improved performances in the European (60%) and North American (10%) markets. A number of companies heavily committed to trade with China, notably in the automotive parts, mechanical and electronic components sectors, are likely to suffer because of the Chinese slowdown. The decline in the numbers of insolvencies, almost unbroken since November 2012, could come to an end. However the general financial situation of companies, with low debt levels, will remain strong.  

 

Solid public and external accounts

Despite the expansionist budgetary policy, on a basis of increasing tax reductions for households, higher pensions, family benefits, infrastructure spending for transport, energy and early childhood facilities, as well as expenditure associated with hosting refugees, the surplus in the public accounts will survive. Although the increase in receipts from higher wages and profits will continue at a slower pace, it will remain significant. Unemployment insurance contributions will continue to be paid, whilst the rate of unemployment will remain low (at around 4.5% applying the European definition) despite any increase associated with the problems of integrating the refugees into the labour market. Income from road tolls for heavy goods vehicles will continue to rise with increased numbers of roads involved. With negative rates up to 10 years, the debt service, which will continue to decline, is currently small.

The current account will remain firmly in surplus thanks to the huge balance of trade surplus (more than 8% of GDP). The balance of services should remain in equilibrium, with the tourist deficit being offset by the surplus in corporate services. The balance of revenues is likely to remain in slight surplus, with income from foreign investments exceeding remittances sent to their countries of origin by émigrés and foreign investors.

 

A Chancellor who remains popular despite criticisms of her immigration policy

The grand government coalition led by the Chancellor, Angela Merkel (CDU), since the elections in September 2013, with Sigmar Gabriel (SPD) as Vice-Chancellor and Minister for the Economy and Energy, has to deal with the arrival of refugees in numbers that reached a million in 2015. Whilst in September 2015, the Chancellor was in favour of opening the borders, under pressure from her right wing, represented by the Bavarian CSU and elements in the CDU and faced with rising concerns within the population, she tempered her position. She is counting on the good will of her European partners to share the burden and, above all, on that of Turkey to slow the numbers arriving on the Greek islands in 2016. Despite criticisms of her migration policy, the Chancellor’s popularity remains high. Without any credible replacement for her, she would seem likely to be leading her government until the elections of 2017. Despite the solid macroeconomic situation, there are still plenty of problems. That of solidarity (financial and other) among the Länder has come to the fore with the hosting of refugees. The declining population, despite the effects of immigration, is a medium term threat for the active population, with women’s participation hampered by the lack of early childhood care facilities. The shortages of engineers and researchers are inhibiting innovation and future productivity, which is clearly linked with the shortages of students in higher education, lured away by apprenticeships. The funding of the transition from 25% to 80% renewable energy by 2050 with, between now and then, the ending of nuclear in 2022 and the modernisation of coal-fired power stations remains contentious. The electricity transmission network does not allow optimal exchanges between the north where the wind potential exists and the south where solar energy is produced, leading to capacity losses.  

 

(Last update : January 2016 ) 

Payment

 

 

Bills of exchange and cheques are not used very widely in Germany as payment instruments. For Germans, a bill of exchange implies a critical financial position or distrust in the supplier.

 

Cheques are not considered as payment as such but as a "payment attempt". As German law ignores the principle of covered cheques, the issuer may cancel payment at any time and on any grounds. In fact, the banks are not obliged to cash cheque in case of insufficient funds in the account. Bounced cheques are fairly common.

 

As a general rule, bills of exchange and cheques do not seem to be effective payment instruments even though they entitle creditors to access a "fast track" procedure for debt collection in case of non-payment.

 

Bank transfer (Überweisung), by contrast, remains the prevalent means of payment. All leading German banks are connected to the SWIFT network (the Single European Payment Area was introduced on 1 February 2014), which enables them to provide a quick and efficient funds transfer service.

 

Debt collection

 

 

According to the German Civil Code (BGB) the standard limitation period is three years and starts at the end of the year in which the claim arose. Accounts receivable therefore generally become statute-barred on 31 December of a year. Exception: The limitation period for invoices related to transport contracts starts from the date of the actual delivery and the respective claims are statute-barred after a period between six months and one year.

 

The collection process generally begins with the debtor being sent a final demand for payment, via ordinary or registered mail, reminding the debtor of its payment obligations.

 

According to the "Law for the acceleration of due payments" (Gesetz zur Beschleunigung fälliger Zahlungen)a debtor is deemed to be in default if a debt remains unpaid within 30 days of payment becoming due and receipt of an invoice or equivalent request for payment, unless the parties have agreed a payment period in the purchase contract. In addition, the debtor is liable to default interest and reminder fees upon expiry of this period.

 

The benchmark interest rate is the Bundesbank's six-monthly base rate, calculated by reference to the European Central Bank's refinancing rate, plus nine percentage points for retailers or commercial companies and five percentage points for consumers (non-commercial).

 

If payment or an out-of-court settlement are not forthcoming despite this approach, the creditor may initiate legal action.

 

Provided the claim is undisputed, the creditor may seek order to pay (Mahnbescheid) through a simplified and cost-efficient procedure whereby the particulars of the claim are set out and result in a writ of execution fairly quickly, by the use of the Online-Dunning Service (Mahnportal), direct interfaces or (only for private individuals) pre-printed forms. Such automated and centralized (for each Bundesland) procedure is available all over Germany.

 

This type of action falls within the competence of the local court (Amtsgericht) where the applicant has its place of residence or business. For any foreign creditor, the competent court is the Amtsgericht Wedding (in Berlin). Representation by a lawyer is not mandatory.

 

The debtor is given two weeks after notification to pay up or to object to the order to pay (Widerspruch). In case the debtor does not object within the timeframe the creditor can apply for a writ of execution (Vollstreckungsbescheid).

 

In case the debtor objects, the creditor can only file a suit in order to obtain a court decision. During this lawsuit the court may instruct the parties or their lawyers to substantiate their claim, which the court alone is then authorised to assess. Each litigant is also requested to submit a pleading memorandum outlining their expectations, within the specified time limit.

 

Once the claim has been properly examined, a public hearing is held at which the court hands down an informed judgement (begründetes Urteil).

 

The losing party will customarily bear all court costs including the lawyer’s fees of the winning party to the extent that those fees are in conformity with the Official Fees Schedule (the Rechtanwaltsvergütungsgesetz / RVG). In case of partial success, the fees and expenses will be borne by each party on a pro rata basis.

 

The reform of civil procedure, enacted on 1 January 2002, is designed to provide all German citizens with a more transparent, timely and effective application of the law. The court must ensure that the procedure leads to a prompt and fair decision.

 

The new measures encourage parties to attempt conciliation before resorting to legal action and give the local courts (Amtsgerichte) stronger powers. They also require the majority of cases to be settled in the first instance, either through an out-of-court settlement or through a court decision.

 

An appeal (Berufung) may be brought against decision of the Court of First Instance if the objected amount in dispute exceeds EUR 600. An appeal will also be admitted by the Court of First Instance if a case involves a question of principle or necessitates revision of the law in order to ensure “consistent jurisprudence”.

Insolvency trend Germany 2014
Payment incident index Germany 2014
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