(8 February 2024 – Germany) Rising energy costs, economic stagnation, real estate concerns and the highest company insolvency risk in Europe have left debt capital market investors demanding higher corporate spreads from German enterprises relative to the wider European Union (EU) area.
The US is recalibrating away from Europe as it seeks to compete directly with transatlantic allies for climate investment. China is a rapidly growing rival in areas such as EVs and is no longer a key destination for German exports. The final blow for some heavy manufacturers was the end of huge volumes of cheap Russian natural gas coupled with the decommissioning of German nuclear power plants.
More than US$13.6 billion of loans and bonds issued by German corporates were distressed in January 2024, 13 times the level in Italy according to Bloomberg News. It points to a wider problem, with over 1 in 10 companies in Germany grappling with balance sheet pressure, the highest rate in Europe according to a report by consulting firm Alvarez & Marsal.
“Germany is really in trouble. All the big manufacturing economies are slowing but, in Germany, this is compounded by higher energy costs. There are also challenges in the auto sector with competition coming from China” commented Barings Fund Manager Brian Mangwiro.