Internal complacency and China, two main risks to Germany

Two main risks prevail now for the German economy, one internal, the other external. A high share of current economic growth is due to the lucky combination of low interest rates, a weaker euro and lower oil prices. 

"If complacency takes over, growth will not stay once the tide turns. To name just a few areas of necessary reforms, creating jobs for people with low qualification, adjusting the educational system to an environment of ever faster change, modernising public infrastructure, reducing further the dependency from exports of manufactured goods", says Nordea Bank.

The more immediate external risk factor is a possible, although not likely, hard landing in China. China is Germany's export destination no. 4 with a share of 6½% of goods exports. China is expected to be market no. 1 for German cars this year, combining both export and local production. 

"For German machine exports, China is export destination no. 1. If China worries return to the headlines in the next months, business sentiment can decline significantly and many companies might put investment plans on hold", added Nordea Bank. 

This doesn't require a hard landing in China but just increasing worries that it could happen. Last year, in the wake of the Ukrainian-Russian crisis the Ifo fell by some seven points within a few months and growth was very slow in Q2 and Q3. And Russia is far less important for German trade than China.