The German economy in May 2018 – first cracks


So, after the „plateau“ in April, it seems that the German economy experiences the first real signs of a possible downswing:

German GDP was still growing in Q1/18 but its pace is „cut in half“ in comparison to Q4/17 (here). Corresponding nicely to that, the OECD has lowered its growth forecast for Germany for the rest of 2018 to (still respectable) 2.1% (here).

After gaining considerably in April, the DAX took a hit during May: Having closed at 12,802 points on 2 May 2018, the DAX reached 13,169 on May, 22, only to then lose 386 points and closed at 12,783 on 30 May 2018. So, the DAX has taken up its downward-trend interrupted last month – and the best date for the „sell in May and go away“ step would have been 22 May for this year.

German exports, after increasing by 1.7% (MoM; -1,8% YoY) in March 2018, only gained another 0.3% (MoM) in April 2018 (but +9.3% YoY!). Meanwhile, the German Target 2 balance exploded by over Euro 50bn and now stands at Euro 956 Billion – which is probably also attributable to the turmoil in Italy in the previous months and the sharp increase in interest, Italy has to pay now on the international market (cf. here for the 10yr yield on Italian treasuries).

After Germany’s industrial production took a then surprising hit with a minus of –1.6% in February (MoM), gained 1,7% in March (MoM), it again lost -1,0% in April 2018 (MoM, . Also, industrial orders declined by another and staggering 2.5% in April 2018 (after already falling 0.9% in March 2018) – which will now surely not bode well with the production figures in the coming months.

The German unemployment-rate fell even further from 5.3% in April to 5.1% in May 2018, the number of unemployed falling by around 68,000 (MoM) and 182.000 (YoY) now reaching 2.315m. Maybe the upward pressure on wages now also contributes to the rising inflation: The German inflation-rate, after stagnating at 1.6% in April 2018 reached a new high with 2.2% in May 2018 (each MoM).

Again, though not unanimously, the leading German sentiment indicators also point to a weakening economy: The German (Industrial) Purchasing Managers‘ Index (PMI) – (slightly) further declined from 58.1 points in April to 56.9 points in May 2018. Meanwhile, the Ifo business climate index stagnated in May with 102.2 points (after 102.1 points in April 2018). There against, the ZEW Indicator further declined from 87.9 points in April to 87.5 points in May 2018.

My base line last month was: „The decisive months will then probably be September and October, especially considering the decision of the US Fed to „raise or not to raise“ interest rates further.“ – Given the general downward trend of early warning indicators (such as the poll-based sentiment indicators) or the industrial orders, this statement is even more true for May 2018. So, welcome to interesting times!

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