Huge Investment Opportunities Return to Western Europe, according to IHS
Energy, chemicals, automotive and technology sectors to grow as defence
struggles; Gap between Germany and the rest growing
BERLIN -- May 15, 2014
Findings from a multi-sector study carried out by IHS Inc. (NYSE: IHS), the
leading global source of critical information and insight, were released at
the IHS Forum in Berlin. As Western Europe returns to growth, the automotive,
renewable energy and technology industries offer billion-dollar growth
*IHS Economics: The gap between Germany and the rest of Western Europe is
growing; France is struggling to keep up;
*IHS Chemical: German and European chemical producers expect marginal
growth in 2014; German producers slightly optimistic about outlook, but
European chemical companies must adapt quickly to be competitive;
*IHS Energy: The European energy sector is experiencing a transformational
shift driven by EU energy and climate policy; Renewable capacity to grow
fastest in the UK;
*IHS Automotive: Europe will overtake North American sales to be the second
largest light vehicle market in the world before 2020; Germany will be
Europe’s largest automotive market for next five years;
*IHS Technology: Western Europe will invest €30 billion in next generation
broadband to tap into future economic and social benefits;
*IHS Defence: NATO will account for less than half of all defence spending
by 2020 as Russia’s defence budget triples in three years.
Germany economy goes from strength to strength as it leads regional growth
“The developed economies are pushing growth back to the Eurozone. But,
Germany’s star will rise faster and higher than the rest in the next three
years,” Nariman Behravesh, chief economist for IHS said.
Germany’s most reliable leading indicators, the purchasing managers’ and the
Ifo business expectations indices, have recovered markedly since hitting
cyclical lows during the second half of 2012, and the moderate downward
correction in February–March 2014 is expected to be an interruption, but not a
“Domestic strength due to structural labor-market conditions, expansionary
monetary and fiscal policy as well as rising domestic demand all underpin
Germany’s economic growth,” Behravesh said. He added that “Germany does face
some serious competitive challenges in the medium- to long-term because of
rising energy costs and poor productivity growth.”
France struggles to keep up
“The prospects for the Eurozone have improved in recent months. However, as
growth returns to the region, France is struggling to keep up,” said Diego
Iscaro, senior economist at IHS.
“We expect France to continue to lag behind Germany over the coming years.
Although the measures announced by the government in recent months, which
included lowering employers’ social security contribution and cutting some
taxes, are positive and go in the right direction, France needs to do more to
fix its deeply rooted structural problems, such as high labour costs and a
rigid labour market,” Iscaro said.
Confidence returns to European and German chemical industry
The German chemical industry’s outlook is slightly more optimistic than the
rest of Europe. “Even though growth is expected to occur at a slow pace,
German producers are more optimistic than others in Europe,” John Page, vice
president of consulting at IHS Chemical said.
“This optimism is largely because the German economy is one of the strongest
economies in the region, the country has a much larger and more robust
manufacturing base than the rest of Europe, and their facilities are more
up-to-date from a technology standpoint than the rest of Europe. Most
companies expect the German chemical business to pick up in the coming months,
also in part due to increasing domestic demand,” Page said.
“At IHS, we expect an overall increase in German chemical production of 2
percent for 2014, so we are talking about sluggish growth here, but it is
growth nevertheless,” he said.
Competition will force evolution of Europe’s chemical sector
Over time, the European chemical industry has seen a gradual change in its
fortunes, with growing costs and a competitive market with many players. Faced
with uncompetitive energy prices and stagnating demand, European chemical
companies must adapt quickly or suffer the consequences.
“European chemical companies will face continued tough competition from Middle
Eastern, Chinese and, increasingly, US producers benefiting from cheap energy
and feedstocks,” said Michael Smith, vice president at IHS Chemical.
2030 EU energy and climate policy targets push energy sector reform
The EU’s ambitious 2030 target of 40 percent greenhouse gas reduction in
Europe requires continued investment in renewables and a fundamental
transformation of the European energy sector amid rising concerns over subsidy
costs and competitiveness.
By 2030, renewable capacity in Europe is expected to grow by 297GW led by the
UK and Germany.
The shale gas boom has shifted the global context for European energy policy,
with low US energy prices adding further pressure to reduce costs of the
European decarbonisation process.
Technology improvements and changes in policy and market design are necessary
to support the build out and integration of renewables in a cost-effective
manner in Europe as the decarbonisation policy has resulted in rising energy
prices for end consumers.
Europe will overtake North America to be the world’s second largest light
vehicle sales market
According to IHS Automotive forecasts, by 2018/2019, Europe will overtake
North America to be the second largest light vehicle sales market in the
world. The 21 million light vehicle units sold in Europe will be second only
IHS Automotive forecasts European production volumes will grow by 21 percent
by 2020, on par with a 19 percent increase in European export volumes.
“Despite increasing competitiveness in the global marketplace, Germany will be
the biggest light vehicle market in Europe until the end of the decade,” said
Carlos DaSilva, manager at IHS Automotive.
“By 2020, Germany will have increased its light vehicle production output by
17 percent, approximately 840,000 units, while other major European markets,
like France, UK, Italy and Spain will see their output decrease or remain
flat,” he said.
Mario Franjicevic, a senior analyst at IHS Automotive, added: “By 2020, German
OEMs are anticipated to be responsible for 70 percent of the global production
output of premium brands. We also anticipate that by 2020 German OEMs will
have an estimated global plant capacity utilization of about 88 percent
compared to an 80 percent global industry average estimate.”
Western Europe’s €30 billion broadband boost
Over €30 billion will be invested in the next three years in Western Europe’s
broadband sector. Across Germany, France, UK, Italy and Spain, government
bodies and telecommunication companies will spend €200 per household on
next-generation broadband rollout.
“Across Europe’s big-five, companies and governments are looking to tap into
the future economic and social benefits of having a future-proofed broadband
network,” said Richard Broughton, head of broadband analysis at IHS
Germany’s Deutsche Telekom made headlines when it committed in 2012 to a
headline investment of €30 billion in high-speed broadband technology in the
years to 2015. Deutsche Telekom intends to ensure that 65 percent of homes are
covered by its fibre-to-the-cabinet (FTTC) network by 2016, with new
‘vectoring’ technology being deployed to raise transmission rates to 100Mbs.
In 2013, the French government set out plans to invest €20 billion of public
and private funds in next-generation fixed and mobile broadband, aiming to
cover half of the population by 2017, with the remaining homes covered within
a further five years.
“Crucially, the government’s plans have stratified investment, asking ISPs to
fund urban coverage, while providing a mixture of state and local government
funding to ensure that semi-urban and rural areas are connected,” Broughton
Almost €9 billion will be invested across the UK, Spain and Italy as
governments set targets to expand next-generation mobile and broadband
European defence sector struggles as Russia booms
“In 2013, 13 of the 20 fastest shrinking defence budgets belonged to NATO
member states,” said Craig Caffrey, budget analyst IHS Aerospace, Defence and
“As a result, NATO will be outspent by the rest of the world for the first
time by 2020 despite being home to nearly two-thirds of global defence
spending as recently as 2009. When we look at the last three years, defence
spending in Asia and particularly in the Middle East has grown rapidly and
this shift Eastward in global defence spending will be a trend that will
continue over the remainder of the decade,” Caffrey said.
By contrast, Russian spending on defence doubled between 2007 and 2013, and
will have tripled by 2016. Russia’s defence budget reached $78.1 billion in
2014, making it the third largest defence spender globally. Defence and
security-related spending now accounts for 33 percent of the state budget,
compared with 23 percent in 2010. By 2020, Russia’s defence budget is expected
to reach $130.8 billion.
“Russia has increased spending on defence rapidly over the last three years.
The country averaged 18 percent yearly growth since 2010 and under current
plans this rate is set to increase to 22 percent in 2015,” Caffrey said.
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