German Manager Magazine: Annual review of 2023 and outlook for 2024: What was, what is to come – ten graphics for the turn of the year002989

The turn of the year is a time for looking back and looking ahead. We give you both in one: What was in 2023, what is coming in 2024?

German economy – the creeping recession

The economic situation in Germany has been a little spooky for months: many companies continue to present strong business figures with billions in profits. At the same time, however, economists are warning of a recession. The outlook given by companies is often correspondingly cautious. And cost cuts and layoff plans regularly make headlines.

The figures on the development of the gross domestic product (GDP) in the third quarter make this clear: Germany’s economy shrank by 0.1 percent during the period

. Only Because the Federal Statistical Office subsequently revised GDP growth upwards in the second quarter, the Federal Republic is not officially in a recession. However, a decline in economic output is to be expected for the year as a whole, as for example the outlook of the International Monetary Fund (IMF) shows (see graphic). Germany is lagging behind other industrialized nations, which is not only due to high inflation and increased interest rates, but also because the weakness of the global economy is particularly noticeable in the heavily export-oriented German corporate world.

What’s next? The experts’ outlook has gradually deteriorated over the course of the year. Nevertheless, most economists assume that the German economy will return to growth next year. The IMF last lowered its forecast for the local economy in October. Until then, the IMF economists had assumed that German GDP could increase by 1.3 percent in 2024 – they now only expect an increase of 0.9 percent. The country’s leading economic research institutes also trimmed their outlook. In their autumn report, they lowered their expectations for 2024 to plus 1.3 percent, from the previous 1.5 percent.

Inflation – the fairy tale of the end of inflation

After inflation rates rose as a result of the Corona crisis, the war in the… Ukraine and the Russian gas ban in 2022 rose to more than 10 percent at times, inflation has continued to decline in the current year. The Federal Statistical Office most recently reported an inflation rate in Germany of 3.2 percent for November 2023. In the In the euro zone, the inflation rate was only 2.4 percent in November.

However, anyone who thinks that this will put an end to the issue of inflation is wrong. After all, prices began to rise more strongly in the course of 2021 than had been usual for a long time. Consequence: After about three years of increased inflation rates, consumers in Germany have to live with a price level that no longer has much in common with what they were used to for many years before

. Energy in particular has become more expensive. But going to the supermarket can also be painful, as our graphic shows – food prices today – whether there are striking price cuts or not – are on average about a third higher than they were three years ago.

What’s next? The European Central Bank (ECB) recently took a break from raising interest rates, However, the issue of inflation is by no means already being ticked off, but is continuing to monitor what is happening closely. Economists assume that inflation rates will continue to fall in the coming year. Economists regularly surveyed by the ECB, for example, predicted an inflation rate of 2.7 percent in the coming year in the central bank’s most recent survey a few weeks ago. Experts expected an inflation rate of 2.1 percent for 2025, which would almost correspond to the central bank’s 2 percent target. This also makes it clear: deflation is not in sight, so prices will remain at the high level reached over the past three years for the time being.

Working life – (not) returning to the office

After the end of the Corona crisis, many companies and their employees were faced with an important question this year: How do we handle working from home? On the one hand, there is no longer any need to work from home due to the pandemic – on the other hand, returning to the old mode of 100 percent office presence seems like yesterday. So we’re looking for the ideal solution, the right middle path – but where does that lead?

Opinions apparently vary widely on this, as some examples show: On the one hand, there are hardliners like Wolfgang Grupp (81), owner and boss of the clothing manufacturer Trigema. He attracted attention with the opinion that If someone can work at home, they are “unimportant”

. Also actually modern ones Companies like Google or Amazon took a step back and restricted the freedoms of their employees again. In the Volkswagen Group, the question arose: “Home office or not?” even a real squabble

. On the other hand, there are also “free spirits” like Uwe Peter (57). The German boss of the US tech company Cisco waives any compulsory attendance and even considers office pressure to be dangerous, and also explained why in the mm interview

.

What’s next? It should be clear that the home office has found its place in the world of work; it is unlikely to become the marginal phenomenon it once was. Beyond that, however, forecasting is difficult and depends on the respective industry and those responsible in the individual companies. Hendrik Grempe is head of the real estate consultancy Combine and a specialist in land use. He believes that the return to the office will continue in principle next year. “Teams come together especially on Tuesdays, Wednesdays and Thursdays to work together in the office and push projects forward,” says Grempe. “However, mobile working or home offices on two to three days of the week have also become established. Therefore, the trend towards reduced office space will continue, but will not accelerate.”

Real estate markets – processing the interest rate shock

As early as mid-2022, the European Central Bank (ECB) began raising interest rates in the euro zone in the fight against inflation. Since then, interest rates have risen across the board, both on the deposit and loan side. However, in hardly any other industry has this had such severe consequences as in the real estate industry. Because financing has suddenly become much more expensive, the business with single-family homes and condominiums has stalled, as has that with office buildings, retail and other commercial properties. The result was a decline in real estate prices and a crash in transaction volumes in 2023 (see graphic).

The most prominent victim of this development is the former “real estate king” from Austria, René Benko (46). Its Signa Group, which also includes the Galeria department store chain, got into severe difficulties due to the rise in interest rates and the plummeting property values. In the meantime, some important companies from Benko’s real estate and trading empire have already had to file for bankruptcy. The former “Wunderwuzzi” fears for his life’s work.

What’s next? The players on the real estate markets still have to get used to the new circumstances, i.e. prospective buyers and borrowers have to recalculate and sellers have to lower their price expectations. As a result, transaction activity will get going again. In any case, the experts from the international real estate consultant JLL see a slight upturn in business at the end of this year, with interest rate developments continuing to play a decisive role. “Even if the ECB has no mandate to protect the real estate market, a further interest rate increase would lead to the destruction of billions in pension and private assets,” says Jan Eckert, Head of Capital Markets at JLL. “The scope on the real estate market has become very narrow.”

Crypto markets – processing the FTX shock

In 2023, the cryptocurrency market was dominated by the bankruptcy of the trading platform FTX. The company, which at its peak was one of the most important market players for Bitcoin and Co., collapsed at the end of 2022. Billions of dollars in investment funds from FTX customers were destroyed and the entire crypto market went into shock. As a result, prices and sales plummeted.

In 2023, the crypto world followed the aftermath of the FTX bankruptcy, namely: the trial against the FTX founder and former crypto billionaire Sam Bankman-Fried (31). The trial before a jury in new York went over the stage comparatively quickly and ended with a guilty verdict: The twelve jurors saw it as proven that “SBF” embezzled eight billion dollars in customer money out of pure greed in order to speculate and finance a lavish lifestyle. They declared the ex-crypto star guilty of all seven counts.

What’s next? The values ​​of cryptocurrencies have already recovered over the course of this year; Bitcoin, for example, rose above the $40,000 mark at the beginning of December for the first time in more than a year. Transaction volumes are also increasing again, with experts expecting this development to continue in the coming years – cryptocurrencies will continue to gain in importance on the financial market (see chart). And SBF? 2024 will be a particularly exciting year for him – after his guilty verdict at the beginning of November, he will have to wait until March of next year before he will find out from the court the extent of his punishment.

Auto industry – problems in China and electrical misery

German car manufacturers lost particularly in 2023 China, the largest car market in the world, continues to gain ground. Volkswagen lost its market leadership in the People’s Republic to its Chinese rival in the first quarter BYD hand over. Since then, Volkswagen’s China boss has been working, Ralf Brandstätter

(55), making a comeback in the important market

. His plan: A China offensive with its own electric car platform, Chinese partners and new models developed in China – “in China for China” is the credo. The VW shares

fell to a three-year low in October.

Even Mercedes boss Ola Källenius (54), who led the car manufacturer toIf you want to upgrade the luxury brand, you can now only get the electric models with discounts going on, while combustion engines have to be expensively upgraded. At Volkswagen, demand for new electric cars is now so low that the company is cutting shifts and jobsthere are hardly any buyers for used cars. The growth in the number of electric vehicles on German roads stagnated this year. The number of registrations fell sharply, especially after the e-car subsidies expired in January and September.

What’s next? The coming year is also likely to be difficult for car manufacturers. The much-used environmental bonus when buying electric cars is no longer available because the traffic light coalition is canceling the funding program due to the budget crisis this December instead of the end of 2024 allowed to expire. Some manufacturers such as Stellantis or Mercedes-Benz now guarantee their customers to take over the funding share yourself. However, price pressure and thus discount campaigns are likely to continue to increase and come at the expense of manufacturers’ margins.

AI boom – the race of the tech giants

After ChatGPT was published, the artificial intelligence market experienced a gigantic boom in 2023, which inspired numerous tech companies. The market value of the US chip manufacturer Nvidia broke the $1 trillion mark for the first time. Microsoft and Google engage in one exchange of blows after another Race for technology leadership

at AI. Also Amazon and that Facebook-Group Meta presented competing software. In Germany, Lidl boss Gerd Chrzanowski (52) climbed together SAP and Bosch at the AI ​​start-up Aleph Alpha – and Intel and Nvidia were ahead of it

.

A spectacular power struggle ensued in November at the globally celebrated start-up OpenAI, in which Microsoft significantly increased its stake at the beginning of 2023. From one day to the next, the previous board of directors had thrown OpenAI boss and founder Sam Altman (38) out the door. Altman and co-founder Greg Brockman, who was also ousted, decided to then go to Microsoft. As the majority of OpenAI’s workforce threatened to follow them and investors also put pressure on them, the saga ended with Altman returning to his old post three days later. A true Game of Thrones

.

What’s next? Nvidia boss Jensen Huang (60) is likely to be one of the biggest beneficiaries of the AI ​​hype in the new year. His company, based in Santa Clara, California, produces chips with enormous computing power that can be used to train generative AI models like ChatGPT. No rival has yet come close to the quality of Nvidia’s technology, which is why the other tech giants currently can’t get enough of it. At the same time Pretty much all tech companies are working on their own

, chips designed for their specific needs, also because the Californians’ graphics processors are extremely expensive and power-consuming.

Bayer in crisis

For Bavarian it was a year full of crises. The new boss Bill Anderson (57) recently had to announce the flop of his biggest hope from the pharmaceutical division. The effect of the stroke drug Asundexian fell far short of expectations. The hoped-for sales of four billion euros per year? Gone. What was once the most valuable company in the Dax has crashed on the stock market in recent weeks.

And then the legal nightmare surrounding glyphosate, which had long been thought to be over, was once again high on the agenda. The company has been struggling for years with a wave of lawsuits over the weed killer developed by Monsanto and recently suffered its fifth defeat in a row in court.

What’s next? After the widespread end to stroke prevention and the patent expiry of its two bestsellers, the blood thinner Xarelto and the eye drug Eylea, in the middle of the decade, Bayer could be facing a phase of zero growth lasting several years. Anderson wants throughh save costs by restructuring the organization and reducing bureaucracy

and make Bayer more powerful. At the Capital Markets Day in March 2024, it will be clear how many management levels will be eliminated, how many people will have to leave and how many costs can be saved.

Banking wedding – the new giant from Switzerland

The turbulence in the banking sector this year also reminded some people of the dramatic rescue weekends during the global financial crisis in 2008. With a thoughtless interview, the largest shareholder of the Credit Suisse, the chairman of the Saudi National Bank, sent the already ailing Swiss bank further into a tailspin and ultimately shook the global financial world. In a rescue operation the Switzerland virtually overnight, a merger between Credit Suisse and UBS to restore confidence in the banking sector.

A new banking giant has emerged whose total assets are almost twice as large as Switzerland’s economic power. A high risk for the country, after all, a bank rescue by UBS could put the state in financial distress.

What’s next? Representatives of central banks, finance ministries and regulators are currently looking for ways to stabilize the Swiss financial system on behalf of the G-20 countries. The Financial Stability Board’s focus is on the question: How to deal with a UBS whose sheer size threatens the entire country?

War in Ukraine and the Middle East – arms companies win

The Russian war of aggression in Ukraine has been raging for almost two years. It is now being overshadowed primarily by the war in the Middle East. The trigger was the worst massacre in Israel’s history, which terrorists from Hamas and other extremist groups carried out in Israel on October 7th. More than 1,200 people were killed and around 240 hostages were kidnapped in the coastal strip. Israel responded with massive air strikes and a ground offensive. According to Hamas, more than 18,700 people have been killed in the Gaza Strip since then. But every crisis has its winners: the wars boost business for arms companies.

Global defense spending rose to a record high in 2022. Although they went Sales of the largest weapons manufacturers fell slightly during this period, as production lagged behind. Lucie Béraud-Sudreau, head of the Sipri program for military spending and arms production, expects higher income for 2023. The Düsseldorf gunsmiths Rheinmetall, which was promoted to the DAX in 2023, receives more orders than ever before. At RTX, one of the world’s largest weapons manufacturers USA, analysts expect sales in 2023 to climb to the highest level in the company’s history since Raytheon merged with United Technologies in 2019.

What’s next? The outstanding orders and the surge in new contracts indicate that global defense sales could increase significantly in the next few years. However, international military aid for Ukraine is currently dwindling, especially from the US President Joe Biden (81).

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