Stocks in Review: Are the 2014 German GDP Numbers Good…or Bad?

Economists agree…to disagree

It’s strange to me how Germany releases its full-year GDP data prior to releasing fourth-quarter GDP data… even though they obviously have the information to calculate it, and anyone with basic math skills can figure out the fourth-quarter growth rate from the first three quarters and the full year. However, that’s the way it is. So, on Thursday, we received full-year 2014 GDP figures from the German Federal Statistics Office.

And they look great! GDP increased by 1.5% in 2014, its best annual performance in three years, higher than the government’s prediction of 1.2% and much higher than 2013’s meager 0.1% expansion rate. The overall budget showed a surplus of about 0.4%.

Observers, though, are split on what the robust number means. The Financial Times reported, “the good annual pace of expansion appears unlikely to hold up,” citing the fact that Germany has cut its 2015 growth forecast to 1.3%, below 2014’s figure, suggesting it may be concerned about economic stagnation. Heinrich Bayer, an economist with Postbank, agreed. “Given the somewhat weak starting point at the start of the year, full-year growth is hardly likely to match last year’s,” he said.

On the other hand, the government’s 1.3% growth prediction is higher than its prediction for 2014. Updated projections are scheduled for the end of this month, and the AFP reported that they would likely be upgraded. Berenberg Bank economist Christian Schulz concurred. “We expect the German economy to gradually pick up speed throughout 2015,” he said, citing Germany’s strong fiscal position, good labor market, and low inflation as just a few of the “plenty of reasons to be optimistic” about Germany’s economic future. I tend to agree with this viewpoint.

The big question now, though, is how that future – and the future of other Eurozone countries – might be affected by the ECB’s decisions on monetary policy as it meets next Thursday, January 22. Most observers expect some sort of action from ECB president Mario Draghi, probably a “quantitative easing” in the style of the US’s Federal Reserve.

The major indices

It was a good week for large caps. As of Thursday’s close, the DAX was up 3.2%, slightly better than the MDAX (up 1.8%) and the TecDAX (up 1.3%), but roughly equal to the HDAX (up 3.25%). The smaller SDAX performed slightly worse, up just 1.1%, while the EuroStoxx 50 was up 3%.

Tops and Flops for the Week

TOP: Beiersdorf AG (WKN:520000) (ETR:BEI) (FRA:BEI) shares rose 4.75% on Thursday, after the maker of Nivea skin care products reported better-than-estimated 2014 sales and increased revenue. By introducing new products, the company has been able to weather weakening personal care spending in Europe, China, and the US. According to CEO Stefan Heidenreich , Beiersdorf is “confident about its outlook for 2015.”

TOP: Again, from our No-News-Is-(Apparently)-Good-News Department, internet company QSC AG (WKN:513700) (ETR:QSC) (FRA:QSC) jumped more than 10% on Tuesday on no news, but after a bullish technical analysis by LYNX appeared on Wallstreet Online, calling it “Our Top Favorite.” No word on whether it was still a top favorite after it gave back nearly all of those gains on Wednesday and Thursday.

FLOP: Europe’s largest sugar producer Südzucker AG (WKN:729700) (ETR:SZU) (FRA:SZU) reported a staggering 84% drop in its third quarter operating profit to 27 million Euros. Even worse was the company’s future prognosis: “we expect that [the] continuously difficult economic environment in the European sugar and ethanol markets will not only negatively impact fiscal 2014-15, but also weigh heavily on fiscal 2015-16 results.” The stock had the second-worst HDAX performance both Monday and Tuesday, down 3.37% and 4.45%, respectively.

FLOP: Copper smelter Aurubis AG (WKN:676650) (ETR:NDA) (FRA:NDA) fell victim to falling copper prices, turning in the HDAX’s worst performance on both Tuesday and Wednesday, with drops of 5.87% and 6.59%, respectively. A Thursday rebound popped the stock back up more than 7%, but it’s still only trading at about the same level as a year ago, around 45 Euro/share.