German economy in January 2017 – Healthy start with mixed signals

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According to preliminary figures, German GDP increased by 1.9% in the whole of 2016 and by around 0.5% in the last quarter. Main driver of growth were exports and state consumption which increased from 2.7 to 4.2% in one year. And this rise in state consumption is mainly attributed to the costs for the refugees which are assessed to be around Euro 22bn in the last year. This figure puts the budget-surplus of around 6bn into perspective…

In January, the DAX, again, reached new hights before rather collapsing: Ending the December with 11,481 points, it then followed the DOW (which set a new record with 20,000 points on 25 January) and peaked at 11,848 points on 26 January. It closed the month more than 300 points lower at 11,535. The first pundits now question whether the „Trump rally“ will continue.

In a somewhat stark contrast to October, where German exports only rose by 0.5%, they set a new record in November with an increase of 3.9% (MoM and 5.6% YoY; imports also increased by 3.5% (MoM); these figures compensate for the rather meagre figures reported for September. However, new industrial orders at the beginning of January were at their lowest within the last two years. Also, the construction industry suffered a sudden drop on incoming orders – at least regarding industry-related orders.

The German inflation-rate again rose from 1.7% in December 2016 to 1.9% in January 2017. This continued rise in inflation – now near the 2%-benchmark set by the ECB – is likely to trigger an increase in interest-rates – even if the Central Banks try to do everything to prevent exactly this from happening.

German unemployment-rate, rose by 209,000 and thus from 5.8% in December 2016 to 6.2% in January 2017. This increase, however, is largely attributed to seasonal effects. Actually, on a YoY basis, unemployment fell by 143,000 thereby again reaching unemployment figures not seen since 1991. Also, insolvencies of German companies fell for another 18.8% in October 2016.

The German (Industrial) Purchasing Managers‘ Index (PMI) further rose from 55.5 points in December 2016 to 56.5 points in January 2017 – thereby marking a 36-months high. In a somewhat unexplicable contrast to the aforementioned positive figures, the Ifo business climate index rather unexpectedly weakened in January and dropped to dropped to 109.8 points after reaching a new high with 111.0 points in December 2016. The ZEW Indicator for the current economic sentiment, on the other hand, rose from 63.5 points in December 2016 to 77.3 points in January 2017 thereby marking a record-high not reached since 2011.

The unclear picture of where the German economy is heading for has been a recurrent story over the last months. This indecisiveness is highlighted, too, by the contradictory results of two studies: While the Boston Consulting Group sees a declining innovative capacity in German companies, the German Ministry for Education and Research together with the OECD concluded that Germany belongs to the most innovative countries. It would really make sense to have a common ground on where we stand before discussing on what to do next…

This is also true for the German real estate market. While the government declared to facilitate lending to homeowners and -builders on the one hand, it now plans a new law with which banks could be forced to limit their lending activities „…in order to counter a possible risk to the financial stability that may arise in connection with over-valuations on residential property markets, declining credit ratios and an excessive expansion of lending.“ No further comment needed.

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