Macroeconomics in Russia & Germany

I’ve spent the last two days in Munich and I’m writing this 343 on the late Easyjet flight home. I was thinking over the last couple of days of attendance at the Fujitsu Forum and meetings with clients. At all the meetings, I heard a common theme, that the “traditional” end of year purchasing boost does not seem to be happening this year.

For the first few years of the digital signage market, there was no seasonality. Each quarter depended on particular projects and deals, without the patterns seen in desktop monitors and TV. In both these markets, the biggest market in Europe is in Q4, with consumer spending for the Christmas period and with some corporates buying (in the case of desktop monitors). Q1 is usually a bit down on Q4, with Q2 a further drop, while Q3 (driven by “back to school” purchases in monitors) is usually better. In the years with big sports 371 (World Cup & Olympics), some of the Q3 sales are pulled forward into Q2 in the TV market.

Public displays started to develop a seasonal pattern a few years ago, with big growth in Q4. some growth in Q1 and then little or no growth in Q2 and Q3. The logic seems to be that spenders committ their budgets at the beginning or end of the budget period. At the beginning of the year, they spend some of the new budget, then hold onto it for a couple of quarters, “just in case”, then spend at the end of the budget period. That pattern seems to have been evident this year.

However, we’re now in Q4 and there should be reports of orders coming in, but the mood in Germany was not so buoyant, with confirmation that traditional end of year monitor orders are not being placed and with fewer tenders being seen in the second half of the year. This seems to be a problem of mood.

Companies have money and are basically profitable, having adjusted to the new realities since 2008. However, they are nervous and are “sitting on their hands”, in other words, they are holding back from placing orders, because of concern over Russia/Ukraine and the general news of low growth and recession in the EU. Given the German obsession at the government level with austerity and the lack of action on stuctural reform in France and Italy, this lack of confidence could turn the current poor growth into a deeper recession and drive the region into a prolonged period of deflation, as Japan suffered for such a long period. If by holding back, corporates and consumers find that prices fall, they may keep delaying spending and that would really hit weakened economies.

My suspicion is that if this happens, it will trigger another Euro crisis. Although the European Central bank did a great job at the last crisis, there has been no significant structural reform that might solve the single currency issues in the long term. My view at the time was that the ECB was just ‘kicking the can down the road’ – although it kicked it a good distance this time!

In Munich, there was talk of a dual currency EU with the stronger economies with one currency and the rest in another, but that is likely to be very politically difficult. As I have said before, if Germany was, instead, to issue a new Deutschmark, it would rise very rapidly and could really hurt the German export engine that drives the country, so I don’t see that as a solution.

So, gloomy thoughts as I head home – but I hope I’ve got it wrong and am just tired after a busy few weeks. Maybe I should have waited a couple of weeks for the Christmas markets and Gluhwein to be present to brighten my mood!