new York Only two weeks ago, Bonnie Tully, the US President of the Essen-based specialty chemicals group Evonik, announced her next investment: Evonik will build a new production facility for lipids for mRNA therapies in the state of Indiana for a total of 220 million dollars together with the US government . Evonik’s lipids are already an important part of Biontech/Pfizer’s Covid vaccines.
At €3.5 billion, Tully is responsible for almost a quarter of Evonik’s total sales. And the US business will continue to grow despite the bleak global market outlook. “We expect further growth because we are concentrating on innovative solutions in growth sectors such as health or pet food,” explains the US boss. Especially in the healthcare industry, America is “a crucial market because most of the pharmaceutical innovators are in the region”.
Tully is not alone in her optimism. Many German companies still see a ray of hope in the USA in an overall gloomy economic environment. The CEO of the major bank JP Morgan Jamie Dimon only recently warned of a possible “economic hurricane” that could also hit the USA. And the President of Goldman Sachs, John Waldron, also predicts “tougher economic times”. But all in all, the situation in the USA appears to many German managers to be significantly better than elsewhere.
In the most recent survey conducted by German chambers of foreign trade around the world, North America also came off best by far. In April, 36 percent of companies expected this year to be better than last, and only 22 percent expected things to get worse.
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Inflation in the USA is currently 8.6 percent, the highest it has been in four decades. This threatens interest rate hikes, which could slow down the economy. But so far, unemployment is extremely low at 3.6 percent, and consumer demand is still strong. In addition, money will flow into the economy over the coming years through the infrastructure package worth billions that the government decided last year. Efforts to outsource more production to the US due to problematic supply chains should also help the US market.
The economists at Deutsche Bank see the probability of a recession in the United States at less than five percent in the next twelve months and less than 20 percent in the year after.
VW continues to invest
“So far I have not heard from any of our members that they are reducing their investments here,” says Dietmar Rieg, Managing Director of the German-American Chamber of Commerce (GACC) in New York. However, it depends heavily on the sectors in which the companies are active. In wind power and alternative energies, for example, there is enormous interest in the USA.
“We would be naïve to say that there are no problems right now,” said Volkswagen of America CEO Scott Keogh. “But we will continue to invest,” says Keogh. After all, the latest investments have paid off.
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VW has invested $3.5 billion in its Chattanooga, Tennessee, site over the past ten years and is profitable again after many years. In the coming months, VW plans to start local production of its ID.4 electric SUV in Chattanooga.
Siemens benefits from the infrastructure package
The booming e-car business also makes Siemens US boss Barbara Humpton optimistic. This is also due to the enormous state aid in the segment. “We are at a historic moment in America, where a bipartisan infrastructure package is being implemented at a cost of more than $1 trillion,” she says.
“That’s why we’re building our capacity to work with partners on a local and national level across the US to improve rail lines, electrify the transportation system, strengthen the power grid and strengthen manufacturing facilities,” explains the Siemens boss.
For e-cars alone, the infrastructure package envisages five billion to expand the charging network, explains Humpton. Siemens has already set up 75,000 charging stations in 50 countries. “We have promised to build one million charging stations over the next four years,” says the Siemens US boss.
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“Moments of disruption create the greatest opportunities to shape the future. I firmly believe that’s the case for the US market,” says Humpton. In manufacturing, for example, Democrats and Republicans alike pushed for more manufacturing to be located in the United States. Investments such as those in semiconductors would help the local industry “and enable even greater growth in the USA,” the Siemens boss is convinced.
BASF boss praises energy security
BASF US CEO Michael Heinz points out that in view of the current energy crisis in Europe, the USA has a clear advantage “when it comes to the local availability of raw materials and resources”. This is especially true in the energy sector. There, the past governments ensured that the USA – also thanks to the controversial fracking technology – has turned from an energy importer to an exporter.
“This competitive advantage is reinforced by a strong political ambition to bring manufacturing back to the domestic market, as well as the promotion of renewable energy and decarbonization measures,” explains Heinz. All of these initiatives are boosting growth in the US, even if the US is no better off than other regions given the major risks of rising interest rates and inflation.
“The US remains an attractive market for BASF and we continue to invest in our business in the region,” Heinz said. “Overall, 15 percent of our global capital expenditures – around 25.6 billion euros from 2022 to 2026 – will go to North America.”
“Real estate market is healthier in the USA than in Germany”
The US market is also more attractive than the domestic market for German real estate investors in these times. “If you compare it with the bleak scenario in Europe, the situation in the USA looks much better,” says Olaf Kunkat, CEO of real estate developer and investor Newport, which invests in Germany and the USA.
“We are currently concentrating our investments almost entirely on the USA,” he explains, citing greater energy security in the USA as one reason for his optimism. But experience from past crises also makes Kunkat optimistic: “The US economy usually recovers much faster. The market has enormous adaptability. And that is also because there is less regulation.”
The coming months will show whether German companies are right in their optimism. JP Morgan boss Dimon didn’t really want to commit himself to his warning either: “We just don’t know whether it’s going to be a small storm or a hurricane Sandy or Andrew!” He clarified. “But we must arm ourselves.”
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