OREANDA-NEWS. October 8, 2012. The positive investment cycle in Germany has come to an end. Global economic weakness combined with the recession in the euro area is leading enterprises to restrain their capacity plans. In the second quarter corporate investments declined more strongly than expected and in 2012 will shrink noticeably by 1.7 % compared to the previous year.

The capacity utilisation in German manufacturing industry has declined. There is little demand for expansion investments. High unemployment, strong fiscal consolidation policies and credit spreads in the crisis countries that remain too high are weakening demand in the euro area. The slowdown of the global economy, particularly in China, is acting as a further economic brake.

"Unfortunately for the coming winter half-year we must expect a further decline in corporate investment," said Dr Jorg Zeuner, Chief Economist of KfW Bankengruppe. "A slow recovery will not begin until 2013 after the global economy has bottomed out. Then export activity and capacity utilisation will pick up. This will be followed later in the year by corporate investments, which are likely to increase by about 1.0 % for 2013 as a whole.

The low interest rates and the unhindered access to credit within Germany suggest that investment activity in Germany will be relatively stable next year - primarily in the domestically-oriented sectors of construction, retail trade and services. ECB policies are seeing success in Germany.

However, developments in the euro area remain the decisive factor for the course of investment activity. A strong decline would hamper German investment activity. The risk exists. In the new year the fiscal pace may intensify again in many countries. The initiated reforms are only slowly having an effect..