Capital market forecasts are standard practice for any major financial corporation. Medium-term trends are more heavily influenced by macroeconomic variables than are short-term fluctuations. It therefore makes sense to deploy an econometric model to analyze capital market trends.

After many decades of growing prosperity households in Germany have accumulated gross financial assets of more than EUR 4 trillion. By the end of 2004 the grand total had reached EUR 4,068bn, roughly twice as much as in 1991. In relation to GDP this comes out at 185 %, well below the level in the USA and Japan where the figure reaches almost three times GDP.

Publishing yield forecasts is part of the everyday business of any major bank or finance company these days. How accurate have the yield forecasts of consensus forecasts been over the past 15 years? We examine this by looking at the German (European) benchmark yield with a remaining maturity of 10 years.

The new Allianz Indicator developed by the economists at Allianz Group and Dresdner Bank provides early pointers to global economic momentum. lt is currently flagging a marked slowdown in growth far the second quarter.

The leap in earnings at many German companies is a source of amazement given the desolate employment situation and domestic economic lull. Analysts estimate that annual profits at the 30 companies making up Germany’s DAX stock market index rose by 72 % in 2004. The actual driver of the higher profit level is the improvement in operating results. How can this earnings paradox be explained?

In the coming decades demographically-induced fluctuations in savings and investment patterns will have a marked influence on capital markets and yields. However, there will be counterweights limiting the swings.

The structure of the external sector in Germany and the European Monetary Union is an important determinant in any assessment of the effects of exchange rates on exports and economic development. German exports to the countries of the European Community, for example, are not directly influenced by exchange rate fluctuations, given that most EU member states belong to a common currency area (EMU). In contrast, appreciation of the euro is seen to place a marked damper on exports to the countries in the dollar area. In euro terms, third quarter German merchandise exports to the United States, for instance, were almost 15 % down in nominal terms on their year-earlier level.