GERMANY: Delay of Intel Inv'ment Subsidized With E9.9b Shouldn't Impact Issuance

A two-year delay of Intel's ~E30bln investment plans in eastern Germany (Magdeburg), which was planned to be subsidized with around E9.9bln by the federal government appears rather unlikely to have effects on 2024/25 federal net issuance plans.

• This comes as the 2024/25 budgets are very tightly calculated and there is still a financing gap for 2025 (likely mid-single digits Ebln). It therefore appears plausible that debt brake net issuance limits will get exhausted irrespective of the announcement. German net issuance is currently planned at E50.3bln in 2024 and E51.3bln in 2025 (note that Q4-24 issuance plans are due to be confirmed tomorrow).
• For now, the production facility investment plans are only postponed, and not cancelled, so the E9.9bln subsidy could still be paid out over time at some point - just later. It also remains a possibility that the production facility may never be built (or will be smaller in size) considering Intel's current cost savings programme on the back of lacklustre performance.
• Politicians' commentary as the news broke overnight was centred around the use of any funds potentially becoming available. At this juncture, it seems plausible that at least part of any freed up funds might simply be used to plug holes in the budget - that is speculative though and will come down to the political process.
• Looking ahead, the deferral is another negative sign for the German industrial sector - which has continued to show weakness over the past couple of months ('Broad-Based IP Weakness in July More Than Reversing June's Strength' - MNI, Sep 6).