The shadow of the recession is waning in the United States, but economic pressures abound across the Atlantic. Even Germany, long the center of fiscal stability and responsibility throughout Europe's crisis, has felt the heat of the eurozone's decline. Still, that hasn't hurt investors much: Germany's DAX (^DAX) picked up more than 3.6% this past week, turning around what had been a downbeat 2013 so far and reaching an all-time record high. Germany's troubles are far from over, but what do investors need to keep an eye on in Europe's most prominent economy?
Outlooks sour, but bright spots remain
Manufacturing has crumbled in Europe, and Germany has been no exception. The eurozone Purchasing Managers Index for April was released yesterday, showing increased contraction in manufacturing activity across the continent. The Index fell to a four-month low with a reading of 46.7, down from March's 46.8 and below the 47 mark that signifies recessionary territory (a reading of 50 represents neither contraction nor expansion). Germany's PMI also fell for a second straight month -- an ominous sign for the world's second-largest exporter.
The bad news has added up to a dismal outlook for Germany in 2013. The country's economists predict growth of just 0.3% this year, down 0.4 percentage points from last year and a far cry from the 3% growth the country experienced in 2011. That the country is still growing means that Germany is far better off than many of its less fortunate European cousins, but the fact that even the continent's leading economy is barely squeaking out growth doesn't invite confidence in a European turnaround anytime soon.
Still, the eurozone hasn't been all bad for Germany. Despite lingering suspicions that Germany's support for floundering European economies has cost its citizens greatly, German nonprofit foundation Bertelsmann Stiftung found that the country benefits from lower international trade costs and a more stable currency situation, among other advantages to staying with the euro. German insurance firm Allianz also determined that the nation saved billions of euros thanks to lower borrowing costs as the European Central Bank continues to lower interest rates -- as it did again on Thursday, cutting benchmark interest rates to an all-time low.
That's been enough to turn around some struggling industries in Germany. The auto industry, long a casualty of the European crisis, posted a 3.8% gain last month -- its first gain in half a year and its biggest advance since late 2011.
The good news for automakers might not be enough to turn around German manufacturing and export activity, but it is a sign that this is one leading European economy -- and maybe the only one -- still deserving of investor trust. For all the flack German Chancellor Angela Merkel has received in the fallout of Germany's austerity-heavy response to the European crisis, the German economy still ranks among the best in the world. The DAX's rise to all-time highs has lifted investor fortunes despite the country's trouble, and if any European economy can still be called safe for investors, it's Germany.
