“Corona is putting globalisation to the test – and, with it, the successful German export model,” an asset manager has said.
Jörg Zeuner, chief economist and head of research and investment strategy at Union Investment, commented in a blog about the impact of covid-induced deglobalisation on the German economy.
He said that the crisis is weakening German car manufacturers, which have already been struggling with the transition to electric vehicles and the diesel crisis.
The current estimate by the Association of German Chambers of Industry and Commerce (DIHK) is that the sector has contracted by 15%, Zeuner noted.
But the nation also risks falling further behind in the digitalisation and automation sectors.
“In the growth area technology, the deficit of the German economy will increase even more.
“While the dominant technology giants in the US are among the winners of the crisis, many German companies are not at the top of their game when it comes to digitalisation and automation. This also applies when comparing Germany with China, which has caught up a lot in recent years,” Zeuner said.
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However, in terms of green technologies, he also sees opportunities for Germany to expand its position.
“When it comes to ‘green’ technologies, Germany has a good starting point – one of the few fields [in which Germany has] opportunities to play a leading role in a growing global market. These include, for example, improved electric motors, recycling systems or green hydrogen,” he noted.
If, however, democratic presidential candidate Joe Biden wins the next election and realises his sustainable investment plan, Germany and Europe’s lead in green technologies ahead of the US could easily disappear, he explained.
Zeuner pointed in his blog to a recent report by Union Investment.
It found that the pandemic represents a systemic shock for global trade, which will lead to lasting shifts in global trade structures.
But the report said that the crisis is reinforcing and accelerating existing trends of decreasing globalisation and “does not mean the end of the global division of labour”.
It said that the dependency on and vulnerability of essential goods, as it was highlighted in the crisis, would give advocates of protectionism new ammunition.
“It is likely that governments will significantly expand the list of strategically important goods or goods relevant to national security,” the authors argued.
They pointed in particular to unstable international cooperation in the medical industry during the crisis.
Many affected countries reacted to shortages in medical goods with export controls and export bans for medical devices.
“The outbreak and spread of Covid-19 resulted in a shortage of goods in almost all affected countries, most of which are imported from countries such as China and India,” the report noted, citing medical equipment or pharmaceutical products.
Since the beginning of the year there have been over 130 trade restrictions on medical products, Union Investment said.
As a result of the experience of the crisis, the term “national security” will likely be interpreted more broadly in other areas, presumably starting with medical goods which were subject to supply bottlenecks during the crisis.
Expansion to other areas is likely, such as critical infrastructure and technology.
In addition to the traditional trade war, the war for global supremacy in future-oriented technologies will become increasingly important.
Nevertheless, the political goal of many countries will not likely be self-sufficiency or complete self-sufficiency, but rather “strategic autonomy”.
Impact on investments
Zeuner suggested that portfolios will not follow the accelerated renationalisation trend of global trade.
“In principle, reduced integration of the global economy should not encourage people to invest less internationally.
“On the contrary: Low interest rates, which were cemented by the corona crisis in Europe, and local weaknesses in the technology sector should, more than ever, support the international orientation of portfolios,” he wrote.