FRANKFURT: Germany’s economy may still be in the doldrums, but investors are starting to change their tune.

According to Dan Dees, Goldman Sachs Group Inc’s co-head of global banking and markets, the conditions for deals have started to improve, German industrial companies are exploring options to expand - albeit in the US - and the startup scene is about as vibrant as anywhere else.

“The mood among executives at German industrial companies is constructive, but definitely more sober compared to the optimism of peers in the United States and specifically the West Coast,” Dees told Bloomberg News in a recent interview.

Dees, 53, just returned from a visit to Goldman Sachs’s office in Frankfurt and its newly opened branch in Munich, where he said a growing number of tech startups - from artificial intelligence (AI) to health technology and gaming - promise to spur deal flow and massive investments in infrastructure.

“Every sovereign country wants to build and own AI capability, which will need chips, data centres and related infrastructure,” Dees said.

Germany has been struggling to revive its economy after the energy crisis, softening global demand and long-simmering structural challenges like an outdated bureacracy and ageing workforce came to the fore.

The list of problems has raised questions about the country’s ability to remain competitive and attract investment.

Now, amid signs that the European Central Bank may cut interest rates in the coming months, German investor confidence is back up, rising this month to the highest in more than two years.

Lowering borrowing costs would be a key catalyst for companies to scale up and boost tech spending on process automation and AI - areas that Dees says German executives are keen to support.

With improving sentiment and interest rates, deal activity is finally starting to pick up after a difficult year. Global deal values are up 24% this year to US$651bil, according to data compiled by Bloomberg. Deals involving companies from Europe, Middle East and Africa are up 44%.

Dees cautioned, however, that it’s too early to tell whether deal making will continue to improve at this pace. It “doesn’t take heroic assumptions to see that deals are picking up after a 10-year low because of stabilising interest rates, economic stability and the combination of dry powder and having assets to sell on the side of the sponsor community”.

Analysts say Germany is in the midst of a recession after contracting in the final three months of last year and, they predict, the first quarter of 2024. The country’s recent poor economic performance - lagging all other G-7 industrial countries - has revived the moniker ‘Sick man of Europe’, which was used to describe Germany’s anaemic growth around the turn of the century before structural reforms were pushed through.

Dees, though, rejected the label, saying the general sentiment among German executives, asset managers and startup founders “was better than what I had expected”.

During his trip to Europe, Dees also met tech industry leaders in London this month and was encouraged by the progress in a sector that’s dominated by US giants like Microsoft Corp and Apple Inc.

“Over the last decade we have seen significant growth in the European tech sector, with the number of unicorns in Europe growing to a record 260,” he said.

Dees expects alternative asset managers like infrastructure funds to contribute to the build-up of the related technology needed for AI and other innovation on a large scale in coming years.

His comments echoed those of Raj Agrawal, global head of infrastructure at KKR & Co, who said in a Bloomberg Television interview this week that investments in Europe’s technology infrastructure poised to surge.

“Europe is one of the most advanced in terms of mobility, handsets, fibre connectivity - so the data usage needs are there. We’re just way behind in Europe,” Agrawal said. “So there’s a tremendous growth story ahead for Europe and data centre infrastructure.”

TSMC is currently building a chip factory in Germany, and the federal government in Berlin is also in advanced talks to buy the domestic business of Dutch grid operator Tennet in a deal that could be valued at around €22bil.

Additionally, Dees expects activist investors to push for deals. “One out of six companies in the S&P 500 has an activist shareholder” and many of these typically call for breaking up traditional company structures to boost efficiencies, he said.

“We have just opened an office in Munich, which has a vibrant tech start-up scene that is just about as optimistic as their peers elsewhere,” he said.

 - Bloomberg