Europe Lifts Out of Recession, but Are German Stocks Ready to Rise?
Aug 16th 2013 5:00PM
Updated Aug 16th 2013 5:02PM
Germany had an up and down week for investors, with the DAX pulling in only a 0.5% gain. The big news wasn't so closely contained to the markets, however: Europe officially (and finally) pulled out of recession this week after years mired in a mess of economic trouble. Only time will tell if the troubled continent's economy can remain that way, but for now, it's a great sign for investors in Europe's stocks who have suffered through years of downbeat data.
You can thank Germany for the continent's rise. Let's dive into what helped the region finally get on course.
Don't count on Europe's rise just yet
The economies of Germany and France picked up steam in the second quarter of 2013. France's economy -- the second largest in Europe -- grew by 0.5%, while Germany's economy -- the largest -- picked up a solid 0.7%. That was enough to lift Europe as a whole higher by 0.3% for the quarter that ended in June, finally ending the consecutive quarters of pullback from the eurozone. Even more impressive, Germany's growth outpaced the U.S.'s second quarter by three-tenths of a percent.
That doesn't mean that the European economy's on safe ground for investors concerned about the big picture. Greece, Portugal, and other countries remain mired in debt, even as the latter's economy posted a robust second quarter. Spain and Italy both remain in recession. It's been especially tough on Germany's exporters, as the eurozone nations are Germany's largest trade partners. The ongoing recession has crippled trade in the bloc, and if Europe slips back, the country's biggest companies will have to continue looking outside of the continent for international revenue.
Germany's DIHK chamber of commerce is a little more optimistic about the country's trade prospects. The DIHK said that it expects Germany to outstrip the U.S. as the world's second-largest exporter later in 2013, rising to second behind only China. Germany currently controls a 7.5% stake in world trade, down from the 11% share it had in the early '90s that helped fuel some of the country's largest manufacturers. Germany's exports mean a lot more to the country's health -- and the health of its businesses-- than does America's, however, so a pickup here would do wonders for investors.
It would certainly do a lot for Siemens , one of Germany's largest firms, which has seen European orders struggle lately. Siemens is already dealing with turmoil following the firing of its CEO after the firm announced last month that it wouldn't meet its full-year profit targets. That's not entirely surprising given how much the firm's struggled in Europe. New orders for the company's Europe, Africa, and Middle East segment fell by 17% last year, with orders dropping by a whopping 43% in Germany, alone.
Siemens has come to rely heavily on Germany's trade prowess to make up for Europe's pullback. Revenue picked up by 8% in the Asia-Pacific region last year, and by 12% in the Americas, forcing more of investors' eyes overseas to judge the company's performance. Siemens's stock has been flat year to date -- certainly not what investors were hoping for, considering that even the DAX has gained in 2013.
Yet, even that segment could be in trouble with the latest worrying news. The Brazilian state governor of Sao Paulo announced that the government will sue Siemens over allegations of price fixing over public transportation construction and maintenance. Rising transportation costs have already combined with other factors to incite riots and public displays of discontent across Brazil in recent months, and Siemens can't afford to lose ground in such a valuable emerging market like this -- particularly as Europe struggles to find its footing.
Still, it's not all bad for Europe's top companies. Europe's car market picked up by 4.8% in July, showing there's one market that's seeing the successes of a slowly improving European economy. German carmakers have increasingly looked outside the continent for sales, with Volkswagen a major example. China has become Volkswagen's top market as the company has emerged as the country's top seller. Meanwhile, European sales have slumped at VW, falling 0.5% year over year in July.
VW's done very well lately -- its stock is up nearly 20% over the past three months -- but the company will need more out of the European economy if it wants to turn around things at home.
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The article Europe Lifts Out of Recession, but Are German Stocks Ready to Rise? originally appeared on Fool.com.Fool contributor Dan Carroll has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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