00:00So we do see a small brightening of the outlook perhaps for business in June.
00:05If you look at the expectations index, maybe that's what I'm seeing.
00:07Would you expect that to brighten substantially from here, given the latest developments in the Middle East?
00:15Well, there is certainly hope that this will happen.
00:17If we look at manufacturing, companies are telling us, yes, the current situation hasn't really improved very much.
00:24Even some indicators have gone down, for instance, more companies, not less.
00:30More companies are telling us they're experiencing bottlenecks with products they buy, especially from the Middle East.
00:39And nevertheless, their expectations are positive for the next six months.
00:43Their expectations have improved.
00:45So it seems to be the scenario that companies expect.
00:48Yes, this situation in the Strait of Hormuz will take some time to improve.
00:54But the hope is at the moment, the expectation is it will improve.
00:58And if it does, if there's no backlash, we would expect the situation to improve in the coming months for
01:04the German economy.
01:06OK, so there is some expectation then that if things hold, we could see some improvement.
01:11How improved could things be, Clemens?
01:14Because if I look at some of these iPhone numbers going back to the Covid era, we haven't bounced all
01:19that far, actually, since the post-Covid time.
01:22Of course, there was the invasion, the full-scale invasion of Ukraine to factor in and everything that that did
01:26to energy prices.
01:29What explains this extremely prolonged period of subdued readings, perhaps, from these numbers?
01:38Yes, I mean, we are at a very low level.
01:40We are even significantly below the February, so the pre-Iran war level at the moment.
01:46So it's been a prolonged period of shocks, one following the other.
01:52And then we have structural issues in the German economy.
01:55German companies have lost competitiveness because energy prices are high in Germany.
01:59There's a lot of red tape, taxes are high, there is increased Chinese competition that is hitting the German economy.
02:06So there's this combination of structural factors and macroeconomic shocks hitting the German economy,
02:12meaning it will take time to recover.
02:15Current forecasts are being revised upwards, but very slowly and not by very much.
02:23So for this year, for instance, we are now expecting 0.8% growth for the German economy.
02:29This is really not a strong recovery, although you would think after this long downtime, there would be room to
02:35improve.
02:35But it will take time.
02:39Yes, indeed. I mean, before the war in Iran started, Clemens, we heard from Chancellor Mertz.
02:44He was describing 2026. He hoped, at least, that it would be a year of growth.
02:48We're halfway through now. How would you characterise this year in the German economic growth story?
02:56So the first half of the year has been lost due to the Iran war.
03:00And overall, growth is really carried by public spending.
03:05So there are these large public spending programmes on infrastructure, on defence.
03:09And that's what prevented the German economy from shrinking again in 2026.
03:14So it's very much government spending-driven growth.
03:17It's not coming from private investment. It's not coming from construction.
03:21It's not coming from consumption, really.
03:24And as long as the private sector doesn't respond, doesn't grow, the potential for recovery is limited.
03:31So this will not work before there is more optimism and confidence among consumers and companies.
03:41Yes. And Clemens, what is the scale and scope of the transformation that the German economy is undergoing right now?
03:48You mentioned competition from China. That makes me think of the auto sector, of course, where we've got competition and
03:54to some extent a shifting relationship with Chinese manufacturers.
03:57We have engineering giants going out of their way to pivot, to become tech companies.
04:03We've got the challenges still lingering, of course, from higher energy prices.
04:06And given another reminder of that with the Iran war, what is the scale and scope of this transformation in
04:12Germany?
04:15It's really a huge transformation.
04:17And as you say, we have these two sectors, automotive, very much affected by Chinese competition, by technological change.
04:25We have the machinery sector, the sort of traditional sectors in the German economy that are affected.
04:31And on top of that, what we are facing is a declining labor force due to demographic reasons.
04:37So in the coming years, there are headwinds for growth anyway.
04:40And this is combined with the transformation of manufacturing.
04:45It is also combined with concerns about tariff wars.
04:50There's more protectionism.
04:51At the same time, of course, new trade agreements like Mercosur and India.
04:55But the German companies will have to adjust significantly.
04:59At the same time, there is still a strong industrial core in Germany.
05:04Three quarters, basically, of German manufacturing firms are still expanding.
05:10So there is some substance here and the basis for recovery.
05:13But the transformation will be large.
05:15It will affect a quarter, maybe even a third of the German manufacturing sector.
05:20So it's really huge.
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