Summary

Savvas Savouri provides a detailed analysis of the German economy, specifically focusing on its manufacturing sector. He explains that economic data is published monthly across various countries and sectors, but it is often piecemeal and staggered. Savouri's method involves aggregating this diverse data—covering metrics like labor productivity, wages, costs, and output—into cohesive time series that help understand corporate earnings, including both public and private companies.

The focus of his analysis is on Germany, and particularly its manufacturing sector, which he deconstructs into several key components. He begins by examining aggregate manufacturing data, such as changes in volume, employment, and productivity, which leads to unit labor costs and overall margins. For example, despite oscillations since 2001, German manufacturing has seen an average sales growth of 2.9% with margins relatively flat. However, specific subsectors within manufacturing, such as mechanical engineering, have experienced significant deterioration in both revenues and margins in 2024. This decline is driven by a combination of falling volumes and rising costs, particularly labor costs, which are not being offset by productivity improvements.

Savouri delves deeper into sub-sectors like the manufacture of agricultural and forestry machinery, which enjoyed strong growth until recent sharp declines in revenue and margins. Other segments, like the manufacture of construction equipment, have shown similar long-term growth but are now struggling due to declining volumes and increasing costs.

He highlights the granular nature of the data, noting that manufacturing categories, like electrical engineering and tire production, exhibit varying performances. Electrical engineering, for example, has recently faced falling productivity and profits, despite employment reductions. Even historically strong sectors like food and beverage manufacturing are showing margin declines, as rising costs outpace pricing adjustments.

Savouri emphasizes the complexity of the German economy, which requires analyzing specific sub-markets to fully understand overall trends. He concludes by comparing Germany’s manufacturing performance to that of other nations like the UK, France, and Japan, noting varying productivity, cost pressures, and pricing power across regions. His analysis underscores that economic health is not uniform, even within sectors, and that data must be closely examined for meaningful insights.

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