By Nina Adam
FRANKFURT -- German companies are sitting on a half-trillion
dollars of cash but are reluctant to invest it in their own
country, potentially threatening the country's competitive edge and
European economic growth.
Germany's nonfinancial businesses have saved more than they have
invested for the past seven years, piling up about EUR455 billion
($500.4 billion) in cash and deposits, German central bank data
show.
Executives blame their reticence on a weak global economic
outlook, regulatory uncertainties and geopolitical risks. Siemens
AG Chief Executive Joe Kaeser said recently the company "is taking
a very cautious approach to 2017" because of rising geopolitical
uncertainties that complicate assessing investment risks.
Economists also cite higher labor costs and outdated public
infrastructure for dwindling domestic corporate investment.
The problem isn't unique to Germany. Companies in other
developed countries have also been investing less since the
financial crisis. But German reluctance appears to go far beyond
the traditional cyclical concerns. Germany's economic upswing has
remained robust, unemployment is at a record low and overall
financing conditions favorable. Business sentiment is improving.
The Ifo institute said Tuesday that it's business-climate index hit
its highest level since April 2014. German companies nevertheless
cling to their savings.
Advocates of higher corporate investment say German parsimony is
troubling, because the economy depends to such a large degree on
research- and capital-intensive industries. It risks weakening the
ability of Europe's largest industrial power to grow and create
jobs in future, with negative consequences for all of Europe.
"We need to be careful that Germany doesn't fall behind
technologically because of persistently low investment," said
Reinhold Festge, head of the German engineering-sector association
VDMA, which represents over 3,100 midsize companies.
A recent survey of German blue-chip companies by The Wall Street
Journal indicates hesitation. Of 11 companies in the DAX-30 stock
index that disclosed their investment plans, five said they plan no
increase in capital expenditure this year or next. Five others said
they plan increases, but mostly outside Germany. The last company,
scandal-plagued car maker Volkswagen AG, said it was canceling or
delaying all investment projects that it doesn't consider
"core."
Over the past decade, German companies have grown more
enthusiastic about investing abroad than at home, according to a
recent survey of more than 300 large German firms by the country's
state-owned development bank KfW. They see better growth
opportunities abroad, partly because Germany's shrinking and aging
population.
Bayer AG is buying Monsanto Co. of the U.S. for $57 billion, in
what would be one of Germany's largest foreign takeovers ever.
Deutsche Börse AG is merging with British rival London Stock
Exchange Group PLC to create Europe's largest stock-exchange
operator.
Industrial group Thyssenkrupp AG, affected by falling world
prices for steel, is keeping investment broadly flat, at a level
well below past peaks. Its domestic investments will stress upkeep,
while it plans to grow its component businesses in China and
Mexico.
Chip maker Infineon Technologies AG also plans to invest more
abroad. "Being close to our customers and finding the right
talented people is crucial," a spokesman said.
Germany's economic power, however, hinges on the strength of its
domestic industrial base. "It should be a major issue in the next
election," said Michael Heise, the chief economist at Allianz SE,
referring to the national polls next fall. "But unfortunately, a
package to stimulate corporate investment in Germany isn't in
sight."
A survey of over 10,500 German midsize companies by KfW released
Tuesday showed German business investment will rise only modestly
this year, following a drop in 2015.
"Expectations for strong rise in corporate investment failed to
materialize," said Jörg Zeuner, KfW's chief economist. This
restraint, which has been visible for many years, has already left
a mark on the productivity of Germany's thousands of midsize, or
Mittelstand, enterprises, Mr. Zeuner said. "It also threatens to
hurt their ability to grow and create jobs in future." Producing
mostly in Germany, Mittelstand companies are the backbone of
Germany's economy.
Dirk Schumacher, chief German economist at Goldman Sachs, said
one reason for the low investment rates might be companies "want to
remain prepared for a possible renewed freezing of bank funding or
access to capital markets."
Corporate savings, added to those of German households and the
government, mean the country overall saves far more than it
invests, and lends the excess savings abroad. Last year that
imbalance -- called the current-account surplus -- reached 8.5% of
gross domestic product, or EUR257 billion. It is forecast to
increase this year. By comparison, the U.S. and the U.K. ran
current-account deficits last year.
"Germany is massively wasting its potential to grow," said
Martin Gornig, an economist at the German Institute for Economic
Research in Berlin, noting companies in the U.S. and China have
more aggressively modernized their production facilities.
With an aging population, he noted, "Germany needs higher
investment to boost productivity and safeguard its economic
prosperity in the years to come."
Write to Nina Adam at nina.adam@wsj.com
(END) Dow Jones Newswires
October 26, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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