September 25, 2017 / 2:27 PM / a year ago

German industry see FDP revival boosting digital transition

FRANKFURT (Reuters) - German industry leaders want a shift toward digital services to be a priority as the pro-business Free Democrats (FDP) appear set to enter coalition talks with Angela Merkel’s conservatives and the Greens.

The FDP, which returned from the German political wilderness with 10.7 percent of the vote in Sunday’s election, promise to cut taxes and raise investment in infrastructure, partly funded by privatizations.

Investing in high-speed telecoms networks and automation would boost economic activity and global competitiveness and has long been a key demand of Germany’s export-led manufacturers — although some workers fear it risks job losses.

“Investments in education and digital infrastructure are urgently needed,” Werner Baumann, chief executive of drugmaker Bayer (BAYGn.DE), said in an emailed statement.

Joe Kaeser, chief executive of industrial group Siemens (SIEGn.DE) agreed, but warned of marginalizing workers and pushing them into the arms of the far-right Alternative for Germany (AfD), the first far-right party to enter the German parliament in more than half a century.

“We are an industrial nation and must shape the fourth industrial revolution and design it in a socially inclusive way - so that as many people profit from its as possible,” he said.

Economists see such investments as a way to combat the effects of an ageing population and to boost stalling productivity gains, factors that are casting a shadow over growth prospects in the medium term in Europe’s largest economy.

“Domestically, a focus on digitalisation is one opportunity to counteract these structural headwinds, and re-accelerate productivity growth,” Morgan Stanley economist Elga Bartsch wrote in a note.

German business confidence deteriorated unexpectedly in the weeks before Sunday’s federal election, suggesting that a consumption-led upswing could lose momentum in coming months.

Thilo Brodtmann, executive director of powerful engineering lobby VDMA, said on Monday: “We need a clear signal for a digital breakthrough, for education and research, innovation-friendly tax policies and above all a priority for flexibility and good ideas.”

The VDMA represents large manufacturers such as engineering group Siemens, robot maker Kuka (KU2G.DE) or machine-tool maker DMG Mori (GILG.DE) as well as a host of smaller firms banking on digitization to boost productivity.

And a host of communications firms including Vodafone (VOD.L), Liberty Global (LBTYA.O) and United Internet (UTDI.DE) stand ready to take advantage of funds that may be made available to expand rural broadband, for example through the further privatization of incumbent Deutsche Telekom (DTEGn.DE).

But UBS economist Felix Huefner said he doubted that any radical stimulus measures would be taken soon, given that the German economy is expected to grow at its strongest pace in six years this year.

“Even if digitalization may be a key priority for Merkel, we don’t expect deep reforms... given the lack of pressure in a very benign economic environment,” he wrote in a note.

Additional reporting by Patricia Weiss and Alexander Huebner; Editing by Keith Weir

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