Position: Long Germany via the etf EWG
We got a bullish report on German imports and exports today for the month of December, with exports up 3% and imports +4.5% versus the previous month. Importantly for the export-heavy economy (exports account for ~ 40% of GDP), December’s reading could suggest an improving trend in 2010. With 5% contraction in German GDP last year and a 18.4% downturn in exports and 17.4% contraction in imports, compares will be easier in 2010.
While we still expect mild growth this year for Germany (and much of the Eurozone), the recent heightened market volatility in Europe over the PIGS affirms our view in owning a lower beta play and countries with “sound” balance sheets. Although Germany, with a budget deficit that may swell to 5.5% of GDP, exceeds the Eurozone’s 3% limit, it’s a far cry from the 10-13% levels of the PIGS and double that of the USA.
Additionally, we’ve had our Hedgeyes on German inflation and employment, both of which have remained resilient over the last months since Germany returned to growth quarter-over-quarter in Q2 ’09. CPI was up 0.8% in January Y/Y, in line with the Eurozone average of 0.9%. And while we haven’t ruled out a gain in unemployment over the intermediate term, which currently stands at 8.2%, we’d expect the government extension of subsidized short-time employment to mute significant gains. Stay tuned.
Matthew Hedrick
Analyst
