Investment boom at a peak - 12% growth in equipment leasing: Clear loss of momentum in 2008

The recent Ifo Investment Survey for the German leasing companies, conducted in conjunction with the German Leasing Association (BDL), indicates robust growth in the industry. New business in 2006 rose by 4.8 percent to €52.4 billion, with real-estate leasing growing by 30 percent and the broader business in movable property expanding by 1.5 percent. This year the industry was boosted by the stronger growth of total investment in the economy and in particular by the improvement in construction activity. In 2007 new business in leasing will exceed the previous year's results by nearly 10 percent. The strong growth is attributable to the robust expansion in movable property leasing (+11.9 percent), whereas real-estate leasing is set to decline by about 5 percent. Since the results of the Ifo Investment Survey indicate that total investment in the economy (excluding residential construction) will record a plus of 8 percent in nominal terms, the leasing ratio will increase this year from 17.9 to 18.0 percent. The leasing ratio for movable property will rise from 22.5 to 23.3 percent. This is primarily attributable to the double-digit growth rates among classical investment goods such as machines, utility vehicles, airplanes, ships, railways and electrical engineering. The forecasting risks for equipment investment in 2008 are relatively high. Although in terms of the investment cycle no major growth slump is to be expected, there are a number of factors that could clearly weaken the investment momentum. Firstly, only rough estimates can be made as to how many investment projects were brought forward to 2007 because of the worsening in depreciation allowances that will take effect on 1 January 2008, investments which would then be "lacking" in 2008. Secondly, it is difficult to calculate what effect the strong euro, the US sub-prime credit crisis, the increased cost of financing and the corporate tax reform will have on the investment climate.