Recent economic data shows that German industrial production, exports and retail sales unexpectedly declined toward the end of 2007, suggesting that growth in Europe's powerhouse economy is slowing. Exports are clearly suffering from the stronger euro, but very few analysts predict a German recession. German exports are unlikely to fall off a cliff, as Asian demand for the country's exports is still healthy. Also, it's important to note that less than 9% of Germany's exports go to the United States, so its direct exposure to an American slowdown is modest. Germany had no property bubble, and German businesses and its consumers have been prudent about debt.
I'm not saying that Germany is going to escape the slowdown in 2008, but it looks like the country is in a good position to avoid a recession. Going by that logic, solar investors might want to look at ze German solar stocks if they want to escape the dreaded R-word.
Some solar analysts agree with this idea. WestLB told clients that Germany's solar sector is in for another year of strong growth. The German solar sector is expected to remain well supported this year as investments are brought forward before a revised renewable energy law comes into effect in 2009 that will see reduced government support. However, WestLB warned that the solar industry may see a downturn in 2009 as falling silicon prices chip away at companies' profits.
"After the boom year in 2008, growth won't be as strong in 2009," WestLB's Sebastian Zank said. "Sector sentiment may turn in the second half of 2008 due to the overcapacity in silicon." Overcapacity in silicon will lead to lower silicon prices, which may lead to lower margins for solar cell, wafer and module producers. "Silicon supply should exceed silicon demand by the end of 2009, according to our calculations," WestLB said.
How can you gain the safety of German economic resilience, while simultaneously sidestepping the overcapacity issue? WestLB suggests investing in large, vertically integrated companies. It recommends German solar cell maker Q-Cells (QCE.DE – Last trade €83.90) and SolarWorld (SWV.DE – Last trade €36.97). And avoiding companies involved in long-term silicon supply contracts with fixed silicon prices, like Ersol Solar (ES6.DE – Last trade €66.36), since these companies may eventually pay too much for silicon if prices drop on overcapacity concerns.
Disclosure: I do not own any of the stocks mentioned above. I don't own a solar panel.