Growth pause rather than
structure break –
How robust is the recovery?
Prof. Dr. Michael Hüther
Director of the Institut der deutschen Wirtschaft Köln PK Hanover Fair, 19 April 2010
Opportunities for industry
Where we are today
Agenda
50 60 70 80 90 100 Feb 92
MayAug Nov Feb 93
MayAug Nov Feb 94
May Dec 00
Mar 01
Jun Sep Dec Mar 02
Jun Sep Dec Mar 03
Nov 07
Feb 08
MayAug Nov Feb 09
MayAug Nov Feb 10
New orders from within Germany New orders from abroad
A new quality of downturn
New orders for German industry in the 1992-94 / 2001-03 / 2008-10 recessions
The index value 100 corresponds to new orders for the first month of the respective recession. Source: StatistischesBundesamt
Feb 92 – May 94 Dec 00 –Mar 03 Nov 07 –Feb 10
What we need to explain!
25 30 35 40 45 50 55 60 65 70 75
Jan Feb Mar AprMayJun Jul AugSep OctNovDec Jan FebMar AprMayJun Jul AugSep Oct NovDecJan FebMar
2008 2009 2010
GER
EU (GER, FR, IT, GB, IRE) USA
Japan China
Parallel global recovery takes place through industry!
Purchase Manager Index for Industry, 50 = Expansion mark
Changes to the credit guidelines
Results of the Bank Lending Survey (positive values: increased severity of guidelines)
Source: Bundesbank -40 -30 -20 -10 0 10 20 30 40 50 60 70 Jan 03 Apr 03 Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Jul 05 Oct 05 Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10
Opportunities for industry
Where we are today
Agenda
Regional growth
Average annual change of GDP from 2001 to 2008, as a percentage
Source: IMF
8,3
7,2
5,9
5,4
4,9
4,0
2,2
0 1 2 3 4 5 6 7 8 9
Asia CIS Africa Middle East Eastern Europe World Advanced Countries
Asia and Eastern Europe set for growth also in the future
Forecast change of the GDP from 2010 to 2014 as a percentage
Source: IMF
-1 0 1 2 3 4 5 6 7 8 9 10
China India Russia Hungary Czech Republic Poland Turkey
Global perspectives for growth in 2010
Change in the real gross domestic product compared to the previous year as a percentage
Source: Consensus Forecasts
2,9 1,2
2,9
3,8
5,2
1,8 0,3
1,9 2,2
4,1
-0,5 0,5 1,5 2,5 3,5 4,5 5,5
Eastern Europe Western Europe North America Latin America Asia
Jun 09 Jan 10
Specialization in the export of investment goods
Relative world market share in the export of investment goods to the emerging markets
Source: InstitutderdeutschenWirtschaftKöln
-120 -100 -80 -60 -40 -20 0 20
GER FR IT ES Euro zone
excl. GER
Export success: investment goods
/ intermediate input
German goods exports to the emerging markets (2007, in bill. euro)
Source: Institut der deutschen Wirtschaft Köln
0 10 20 30 40 50 60 70
Intermediate input goods (processed)
Investment goods (excluding parts /
accessories)
Investment goods – parts / accessories
Means of transport – parts /
accessories
Consumer goods Passenger vehicles
Commercial means of transport
Research as an industrial domain
Expenditure by industry in research and development in billion euro
27,9 27,7 28,4 31,1
36,1 39,8 42,7 43,7
48,1 53,7
1,3 1,5 2,3
3,6
4,0 3,9
4,7
5,4
6,1
1,8
0 10 20 30 40 50 60
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Processing industry Services and others 1)
Opportunities
for
industry
Where
we
are
today
Agenda
Temporary lack of investment poses an increased
challenge for supply side policy
A continued lack of investment in equipment (2009: -22 % and 2010: +0.5 %) will make the “sunk cost” argument less significant.
This provokes that, in times of economic recovery, the decision where to produce becomes a more important part of the investment decision.
In terms of economic policy, supply conditions take centre stage:
Taxes and duties (structure, transparency)
Tax concessions to promote R&D
Bureaucracy
Lack of skilled workforce
Challenge: Reliable availability of resources
Availability
Market power Political
risk Future relevance
Non-substitutability
germanium, indium, baryte, silver, gold, tin, zinc, lead;
(fluorite, niobium, nickel, molybdenum, manganese, copper)
niobium, platinum group, rare earth minerals, tantalum, magnesium, graphite
rare earth minerals, cobalt, lithium, phosphate, tungsten, magnesium, chromium; (platinum group)
rare earth minerals, phosphate, tungsten, magnesium, lithium, cobalt, platinum, selenium; (gallium, germanium)
rare earth minerals, phosphate, selenium, indium, gallium, germanium, potash salt, graphite, platinum group, chrome, manganese, molybdenum, cobalt
The turkey
or: how awareness of risk diminishes
A turkey is fed every day for a
thousand days. Every day, its brain registers that humans take care of its needs, and this realization becomes more entrenched with each passing day.
One fine Wednesday afternoon, just one day before Thanksgiving, the turkey is dealt a nasty surprise.
Experiences from the past influence our expectations, even though they actually do not apply to the future.
The Millennium Bridge London
or: How people lose their individuality
Opened on June 10, 2000. Only two days later, it had to be closed due to serious and uncontrolled swaying motion.
People do not walk in step (uncorrelated risks). If transverse vibrations occur by coincidence, they adjust to each other and attempt to cancel each other out through their own movement.
This means that they unconsciously move synchronously and in doing so exacerbate the swaying motion.
