Germanys Digital Scoreboard

Carsten Brzeski, Chief Economist

Inga Fechner, Economist

Still in “Neuland” or catching up?

July 2018

• Sound fundamentals, low interest rates, and record high employment currently bode

well for the German economy.

• However, some darker clouds have appeared in the German economic sky.

Protectionism would definitely hurt the self-proclaimed export world champion and Italian politics and the continuing migration crisis could slow down the current

euphoria. And there are longer-term challenges such as ageing and digitalisation.

• Complacency is not an option. The German economy needs new investments and

structural reforms. Improving the digital infrastructure is urgently needed as

digitalisation is key. Not only to get the German population up to speed but to ensure that German small and medium-sized enterprises (SMEs) and all the hidden

champions, don’t fall behind international competition.

• While Germany has a digital agenda for 2025 - a lot needs to be done in order to

become a real forerunner. In 2013, Chancellor Angela Merkel called the internet

“Neuland”. It might not be so new anymore but Germany clearly needs to step up its game to really embrace and reap the benefits of “Neuland”.

Still in “Neuland” or catching up?

2

Germany ranks 15th in IMD’s 2018 world competitiveness ranking

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0

2

4

6

8

10

12

14

16

2014 2015 2016 2017 2018

Germany has lost its competitive edge over the years

Source: IMD World Competitiveness Ranking 2018

The world competitiveness ranking is published yearly by the Swiss-based International Institute for Management Development (IMD) since 1989 and is a worldwide reference point on the competitiveness of countries.

The ranking combines hard data in the form of statistics from international regional and national sources and soft data in the form of a survey sent to middle and upper-level managers for each of the 63 economies assessed.

And 18th when it comes to digital competitiveness in 2018

4

70

75

80

85

90

95

100

Source: IMD World Digital Competitiveness Ranking 2018

Germany’s competitiveness landscape could look better – especially when it comes to infrastructure

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50

60

70

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0

2

4

6

8

10

12

2014 2015 2016 2017 2018

Infrastructure ranking

Source: IMD World Digital Competitiveness Ranking 2018

And overall digital competencies

6

Source: European Commission

0

10

20

30

40

50

60

70

80

The Digital Economy and Society Index

2018 ranking

Connectivity Human Capital Use of Internet Integration of Digital Technology Digital Public Services

Internet speed is too slow for the top…

7

Source: Akamai

0 5 10 15 20 25 30

Germany (25)

United States

Denmark

Japan

Singapore

Finland

Switzerland

Hong Kong

Sweden

Norway

South Korea

Average internet connection speed

(Mbps) Q1 2017

Also in companies

8

Source: Destatis, Eurostat. Fast internet refers to fixed broadband connections with a contractually agreed data transfer speed of at least 30 megabits per second (Mbps)

0 10 20 30 40 50 60 70 80

Italy (EU-min)

Cyprus

Greece

France

Germany

Portugal

Sweden

Netherlands

Denmark (EU-max)

Enterprises with fast internet access

all enterprises with 10 or more persons employed (%), 2017

EU-28 = 40

Online sales and cloud computing are not widespread

9

Source: Destatis

0 10 20 30 40 50 60 70 80 90 100

Cloud Computing

Online sales

Fast internet

Social Media

Mobile broadband

Website

Fixed broadband

Companies in Germany who have...

(%) 2017

Share of glass fibre…

10

Source: OECD Broadband Portal

0% 10% 20% 30% 40% 50% 60% 70% 80%

Greece

Germany

Italy

France

United States

Netherlands

Turkey

OECD

Sweden

Japan

Ready for Industry 4.0?

Share of fibre connections in total broadband subscriptions (%), 2017

Glass fibre is made up of multiple strands of glass. Fibre optic cables are designed for the transmission of large amounts of data and for long distance.

IoT devices…

11

Source: Deloitte, as of July 2017

0 2 4 6 8 10 12 14 16 18

Wireless speakers

Fitness tracker

Smart watch

Connected car

Camera / alarm system

Connected home appliance

Smart lighting

Smart thermostat

Share of respondents who use Internet of thing (IoT) products in Germany (%)

2015 2017

IoT: Internet of things describes the networking of physical devices (e.g. fitness tracker, vehicles or home appliances) with sensors, software or electronics via the IP network. The physical devices are able to connect and exchange data.

W

As well as the number of wifi hotspots remain low

12

Source: iPass, OECD ING Economic & Financial Analysis. Population data for Russia and China as of 2016

0 20 40 60 80 100 120 140 160

Russia

Netherlands

Germany

France

Sweden

China

US

Japan

UK

South Korea

Commercial hotspots per 10,000 inhabitants

While costs remain high…

13

Source: Verivox

100 GB

100 GB

25 GB

flat rate

flat rate

flat rate

flat rate

flat rate

60 GB

flat rate

0 10 20 30 40 50 60 70 80 90

Poland

Italy

Spain

Switzerland

Netherlands

UK

Sweden

France

Austria

Germany

Mobile phone tariffs in comparison

(€) per month

The chart shows monthly prices for unlimited internet flatrates, e.g. tariffs that do not reduce the surfing speed after consuming a certain amount of data, or very large data packages.

Not only for mobile phone tariffs but electricity too

14

Source: Eurostat

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

Electricity price for households per 1 kWh in H2 2017 (€)

Excluding taxes and levies All taxes and levies included

Online banking is on the rise, yet remains lowwhen compared to peers

15

Source: Eurostat

0

10

20

30

40

50

60

70

80

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Online banking users (%)

2010 2017

But robots are already here

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0 100 200 300 400 500 600 700

Czech Republic

Switzerland

France

Slovakia

Slovenia

Finland

Austria

Canada

Netherlands

Spain

Taiwan

Belgium

Italy

US

Denmark

Sweden

Japan

Germany

Singapore

Korea

Number of installed industrial robots

per 10,000 employees in manufacturing industry, 2016

Average world: 74

Source: IFR

And are changing labour markets…

17

Source: ING-DiBa Economic & Financial Analysis, Die Roboter kommen (doch nicht?), Juni 2018

Managers

Professionals

Technicians and associate

professionals

Clerical support workers

Service and sales workers

Skilled agricultural, forestry

and fishery workers

Craft and related trades

workers

Plant and machine operators

and assemblers

Elementary occupations

0%

2%

4%

6%

8%

10%

12%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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(% c

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Probability of computerisation

Employment growth and probability of computerisation in Germany (%)

And having an impact on middle-class jobs

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0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Highly complex/complex occupations Skilled workers Elementary occupations

Employment growth in Germany

% change, 2013-17

Source: ING-DiBa Economic & Financial Analysis, Die Roboter kommen (doch nicht?), Juni 2018

For Germany’s Mittelstand it’s more of an opportunity than a threat…

19

Source: EY, Digitalisierung im deutschen Mittelstand, März 2018

23

37

26

14

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

.

Do digital technologies play a role for the business

model of your company?

Yes, a very large role

Yes, a medium-sized role

Hardly any role

No role at all

23

51

6

20

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

.

Is the growing importance of digital technology more of a threat or an opportunity?

It’s also about money…

20

Source: Bitkom, IDC

0

1

2

3

4

5

6

7

2016 2017 2018

Market for big data is growing at double-digit rates in Germany

Sales (€bn)

Hardware Services Software

And value added

21

Source: European Commission, The 2018 PREDICT Key Facts Report, ING Economic & Financial Analysis. ICT sector acc. to operational definition, data for 2016 and 2017 has been nowcasted. The operational definition takes into account the standard distinction between manufacturing and services, but does not include the sectors “ Manufacture of magnetic and optical media” and “ICT trade industries”

0

100

200

300

400

500

600

700

800

900

1,000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

(€b

n)

ICT sector value added

Germany US China EU (ex Germany)

Value added: value of output minus the value of intermediate consumption

Disclaimer

22

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