Coface Group
Germany

Germany

Population 82.9 million
GDP per capita 47,662 US$
A3
Country risk assessment
A1
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.6 1.3 0.6 -6.6
Inflation (yearly average, %) 1.5 1.7 1.5 0.5
Budget balance (% GDP) 1.2 1.9 1.4 -7.1
Current account balance (% GDP) 7.8 7.4 7.1 5.0
Public debt (% GDP) 65.0 61.6 59.5 76.6

 

(e): Estimate (f): Forecast

STRENGTHS

  • Strong industrial base (24% of GDP, 2019)
  • Low structural unemployment, well-developed apprenticeship system
  • Importance of family-owned exporting SMEs (Mittelstand)
  • Relatively low private household debt (83% of disposable income, 2018)
  • Institutional system promoting representativeness

WEAKNESSES

  • Declining working population from 2020 onwards, despite immigration
  • Low bank profitability
  • Prominence of the automotive and mechanical industries, particularly in exports (32% of GDP in 2018)
  • Capacity constraints, insufficient investment (especially in internet accessibility) and venture capital limit productivity gains
  • Eastern Länder still lagging behind, although the gap is narrowing
  • Increasing split in the political party system with former small parties getting bigger, which makes the formation of a coalition harder

Risk assessment

Strong recession despite good crisis management

The economic outlook is mainly shaped by the Covid-19 pandemic. The first case in Germany was diagnosed on 27 January and the pandemic peaked in early April. Since the end of May, new daily infections were limited, but they have been increasing again since mid-July, while remaining bearable (status: 21.09.20). 276,665 cases were reported (0.3% of the population) and 9,400 deaths (0.01% of the population. The health system is efficient and well resourced. The German government reacted fast by implementing a lockdown (people were still allowed to leave their home in general, but personal contact with more than one person outside of a household was forbidden). On 14 March, the government closed all educational institutions and non-essential shops and issued travel-warnings for almost every country. Furthermore, all restaurants, bars and clubs had to close, as well as cultural and worship places. On 20 April, some restrictions were eased. Since late August, schools have been functioning normally. However, wearing a mask during shopping and in public transports is still mandatory. Since mid-June, the borders are open again with EU/EFTA countries, as well as some single other countries. However, the travel-warnings for specific regions in these countries, which require quarantine or tests after visiting, are changing on a weekly basis. The stringent restrictions have had a strong impact on economic activity. Private consumption and investment dropped sharply. The latter fell because several manufacturing companies, large car producers included, shut down their production for weeks due to hygiene problems. With a decrease in global production and a lack of cargo flights, exports fell dramatically in Q2. All of the aforementioned issues resulted in a 6.7% GDP drop in the first half of 2020 compared to the first half of 2019. From the second half of 2020 onwards, we expect a gradual recovery, which could be negatively influenced by the return of restrictive measures. Swift and very strong fiscal impulses limited the economic downturn and supported the recovery. The government introduced two supplementary budgets, cumulatively amounting to EUR 286 billion (8.9% of GDP), which include an extension and widening of the short-term work subsidy, support for healthcare, a temporary VAT reduction, as well as grants to small business owners to cover their fixed costs. Moreover, the federal development bank KfW is offering guarantees and loans for a total of EUR 757 billion (24% of GDP). The ECB has supported the financial market in the Eurozone via the widening of its existing Assets Purchase Programme by EUR 120 billion, as well as the new Pandemic Emergency Purchase Programme with a scope of EUR 1,350 billion until at least the end of June 2021. While the ECB kept its interest rates unchanged, it introduced additional longer-term refinancing operations at a low rate of -0.5% (equal to the deposit rate). These all helped to limit the increase of the unemployment rate from 5.3% in February to 6.3% in July, with companies applying for short-time work for over 12 million employees (25% of the labour force) between March and July 2020.

 

The end of the public budget surplus

In 2020, after nine years of federal public budget surplus, the fiscal stimulus measures will induce the deepest public deficit since 1995, again bringing the public debt ratio above the Maastricht target of 60% of GDP. However, Germany’s current account balance should remain in surplus, but will shrink significantly, as exports fell faster than imports due to the lack of demand for industrial products in the main export destinations, i.e. the eurozone, the US and China.

 

COVID-19 gives the government a confidence boost

Following the parliamentary elections of September 2017, the Conservatives (CDU/CSU) and the Social Democrats (SPD) formed the third Grand Coalition under the leadership of Chancellor Angela Merkel (CDU). In the first years, the half-heartedness in both parties for this coalition led to a change in their leadership. The SPD elected Norbert Walter-Borjans and Saskia Esken, two unknown left-wing Social democrats, as their new chairs in December 2019, while the future leadership of the CDU is still unknown after Annegret Kramp-Karrenbauer announced her resignation in February 2020. The Covid-19 pandemic postponed the succession race until December 2020. However, in the meantime, Chancellor Angela Merkel regained support thanks to her fight against Covid-19 and the support rate of the Conservatives increased from around 27% in late February to 37% in August. This came at the expense of the Greens, for which it declined from 23% to 16%, and the right-wing Alternative for Germany (AfD), down from 16% to 9%. Therefore, the Grand Coalition is expected to last until the next general election in September 2021.

 

Last updated: September 2020

Payment

Bank transfer (Überweisung) remains the most common, means of payment. All leading German banks are connected to the SWIFT network, which enables them to provide a quick and efficient funds transfer service. The SEPA Direct Debit Core Scheme and the SEPA Direct Debit B2B are the newest forms of direct debit.

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 certified cheques, the issuer may cancel payment at any time and on any grounds. In addition, banks are able to reject payments when the issuing account contains insufficient funds. Bounced cheques are fairly common. As a general rule, bills of exchange and cheques are not considered as effective payment instruments, even though they entitle creditors to access a “fast track” procedure for debt collection in case of non-payment.

Debt Collection

Amicable Phase

The amicable collection is an essential step to the success of collection management. The collection process generally begins with the debtor being sent a final demand for payment, via ordinary or registered mail, reminding the debtor of their 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 the due payment date and after receipt of an invoice or equivalent request for payment, unless the parties have agreed to a different payment period in the purchase contract. In addition, the debtor is liable for default interest and reminder fees upon expiry of this period.

Debt collection is recommendable and common practice in Germany.

 

Legal proceedings
Fast-track proceeding

Provided the claim is undisputed, the creditor may seek order to pay (Mahnbescheid) through a simplified and cost-efficient procedure. The creditor describes the details of their claim and is subsequently able to obtain a writ of execution fairly quickly via the Online-Dunning Service (Mahnportal), direct interfaces or (only for private individuals) pre-printed forms. Such automated and centralised (for each Bundesland, federal state) procedures are available all over Germany.

This type of action falls within the competence of the local court (Amtsgericht) for the region in which the applicant’s residence or business is located. For foreign creditors, the competent court is the Amtsgericht Wedding (in Berlin). Legal representation is not mandatory.

The debtor is given two weeks after notification to pay their debts or to contest the payment order (Widerspruch). If the debtor does not object within this timeframe, the creditor can apply for a writ of execution (Vollstreckungsbescheid).

 

Ordinary proceedings

During ordinary proceedings, 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 passes 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 the case of partial success, fees and expenses are borne by each party on a pro rata basis.

Ordinary proceedings can take from three months to a year, while claims brought to the federal Supreme Court can reach up to six years.

An appeal (Berufung) may be brought against the decision of the Court of First Instance if the objected amount in dispute exceeds €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”.

 

Enforcement of a Legal Decision

Enforcement may commence once a final judgement is made. If debtors fail to respect a judgment, their bank accounts may be closed and/or a local bailiff can proceed with the seizure and sale of their property.

For foreign awards, in order to obtain an exequatur, the creditor needs a notarised German translation of the decision which also has to be recognised, an enforcement order of this judgment, and an execution clause. Judgments of courts of EU member states are recognised without further procedure – unless certain restrictions arising from European law are applicable.

 

Insolvency Proceedings

Out-of Court proceedings

Debtors may attempt to renegotiate their debts with their creditors, which helps to protect debtors from early payment requests. However, the procedure is in the creditors’ interest as it can be faster and tends to be less expensive than formal insolvency.

 

Restructuring

Following a petition filed before insolvency court on the basis of illiquidity or over-indebtedness, the court may open preliminary insolvency proceedings, where it appoints a preliminary administration aimed at exploring the chances of restructuring the company. If the administration authorizes this restructuration, it then initiates formal proceedings and nominates an administrator in charge of continuing the debtor’s business whilst preserving its assets.

 

Liquidation

Liquidation may be initiated upon demand of either the debtor or the creditor provided that the debtor is unable to settle its debts as they fall due. Once recognized through a liquidation decision and once the company has been removed from the register, the creditors must file their claims with the liquidation administrator within three months of the publication.

 

Retention of title

This is a written clause in the contract in which the supplier will retain the ownership over the delivered goods until the buyer has made full payment of the price. There are three versions of this retention:

  • simple retention: the supplier will retain the ownership over the goods supplied until full payment is made by the buyer;
  • expanded retention: the retention is expended to further sale of the subsequent goods; the buyer will assign to the initial supplier the claims issued form the resale to a third party;
  • extended retention: the retention is extended to the goods processed into a new product and the initial supplier remains the owner or the co-owner up to the value of his delivery.
Insolvency trend Germany
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