In this piece, we will take a look at the 12 best German stocks to buy now. If you want to skip our overview of the German economy and how it has struggled as of late, then check out 5 Best German Stocks To Buy Now.
The outbreak of the Russian invasion of Ukraine upended the global energy markets, and one country that was caught smack in the middle was Germany. Germany is Europe’s largest economy in terms of output, and its manufacturing industry is made of some of the most well known car manufacturers in the world such as Bayerische Motoren Werke Aktiengesellschaft (OTCMKTS:BMWYY) and Volkswagen AG (OTCMKTS:VWAGY) which rely on cheap fuel to power up their manufacturing plants. The Russian invasion forced Europe to diversify its energy supplies away from Russia, and naturally, this increased costs for the companies since they had to source new energy for their needs.
In terms of numbers, Germany imported 42.6 billion cubic meters of gas from Russia in 2020, which accounted for 65% of its gas imports in the year. Naturally, this placed the German economy at quite a disadvantage when it came to replacing its energy sources, and the switching was a task that would have had painful outcomes for the Germans no matter how hard they tried to avoid them.
However, it’s been more than a year and a half since the invasion began and the situation is quite changed now. In fact, according to Germany’s finance minister Christian Linder, while Germany is still dependent on energy imports, these are not sourced from Russia. This alternative energy mix is made of coal fired power plants that were recommissioned once again, delayed its plans to shut down some nuclear power plants, and made investments to store more imported gas. The new strategy of increasing storage capacity is part of a global shift towards liquefied natural gas (LNG), which is simply natural gas compressed at extremely high pressures to make its storage and transportation easier since compressed gas allows for more volume of gas to be stored in a container. The uptick in LNG imports has spurred the Germans into action, and by May 2023 Germany had three new LNG terminals with a send out capacity of 2 billion cubic meters. In the LNG industry, send out is the amount of gas that a storage facility supplies to land based pipes, and the three new storage units have a capacity of 14 billion cubic meters.
The progress in expanding the LNG capacity continued after May as well, and in September 2023 the German gas operator Deutsche ReGas had booked 4 billion cubic meters of gas storage capacity for the next ten years at an island in the German Baltic Sea. These are floating storage and reception units (FSRUs), and the German government intends for them to serve as a stop gap measure before more fixed terminals can come online.
So, it’s clear that the Germans have moved fast to diversify their energy sourcing, but what about the impact on the German economy from all this disruption? Well, the picture isn’t too great for Europe’s largest economy when it comes to GDP growth. According to estimates from S&P Global’s HCOB German Flash Composite Purchasing Managers’ Index (PMI) shows that as of October 20th, the German economy remained in contraction. The four primary German PMI indicators, namely the Composite PMI Output, Services Activity, Manufacturing PMI Output, and Manufacturing PMI stood at 45.8, 48, 41.4, and 40.7, respectively. For the first two, the readings stood at two month low levels, while the latter two marked four month and five month highs, respectively. The report adds that business confidence remained low, and presented a sharp contrast between the manufacturing sector expectations and service sector expectations.
Reading into the data, the chief economist of Hamburg Commercial Bank, Dr. Cyrus de la Rubia, shared:
Germany is kicking off the final quarter on a sour note. The HCOB Composite Flash PMI is still stuck in the red this October and even slipped a notch from last month. Therefore, there is much to suggest that a recession in Germany is well underway. With the HCOB PMI indices baked into our GDP nowcast, we are calculating a -0.4 percent slip in GDP this quarter, after an estimated -0.8 percent slide the quarter before. If these nowcasts hit the mark, this would result in a -0.8 percent overall growth rate for 2023. This would make the German government’s -0.4 percent shrinkage call seem pretty rosy.
“The PMI results show that the downturn is broad based. Manufacturing output continues to fall at a steep rate and activity in the services sector, which grew last month, swung into the red again. The jobs market is mirroring the trend – services employment is in month two of a gentle decline, while manufacturing, already four months…
Read More: 12 Best German Stocks To Buy Now