The German economy in January 2019 – Paralysis?

Although indications that the German economy ended 2018 in negative territory kept piling up (cf. here for the previous month), the sentiment indicators’s downward path of earlier months accelerate in sync with the industrial production and orders, Destatis just announced that the German economy „only“ stalled in the last quarter of 2018. Let’s look at the development in more detail: 

The German GDP grew zero per cent in the last quarter of 2018, according to a press release of Destatis (here). As already commented on the (unexpected) decline in the third quarter (cf. here), I think that German „experts“ and politicians cling to a „growth-story“ which is no longer existing and try to explain a general downward trend with singular events. We’ll see if this blissful ignorance continues…

The German DAX, after crashingin December 2018, recovered January 2019: After starting at 10,580 points on 2 January, the index ended almost 600 points higher with 11,173 points on 31 January 2019 (here)!

Although German exports gained3.0% in 2018 and 1.5% in December on a MoM-comparison, they kept their losing streak on a YoY-comparison with -4.5%. Given the varying results of the previous months (July: +7.6%; August: +2.2%, September -1.2% October: +8.5%, November: 0.0% (all YoY)), it is hard to really discern a trend here. The (corresponding) German Target 2 balance, increased by another Euro 2bn and is now at Euro 968 Billion on 31 January 2019 – which does also not really add to something like a trend.

Germany’s industrial production-figures, though corrected (upwards) for November, registered another strong decline in December 2018, with -0.4% (MoM) and -3.9% (YoY). This decline is probably not a good sign for the GDP-development in the last quarter of 2018… As are the German industrial orders, which lost -0.2% (MoM, -3.4% YoY) in November and then again -1.6% (MoM) and a staggering -7.0% (!!!) in December 2018 (very good (but depressing) commentary on German production and orders on Wolfstreet (here, in English).

German unemployment-rate – due to the cold winter – further increased from 4.9% in December 2018 to 5.3% in January 2019, but fell another incredibly 165,000 on a YoY comparison, which is yet another record for a January since the Re-Unification. The German inflation-rate, after declining 1.7% in December 2018 even fell into negative territory with -0.8% (all YoY), however, increased by 1.4% on a MoM basis. Also, corporate insolvencies in Germany went into a „free fall“: After a decline of already -8.1% in September and a modest rise of 3.5% in October, corporate insolvencies fell by -13.7% (!) in November 2018.

Against these rather lagging indices, the leading German sentiment indicators now solidly point to an at least weakening, if not recessionary economic trend: the German (Industrial) Purchasing Managers‘ Index (PMI) continued its downward path from 51.5 points in early January to 49.7 points in early February 2019. In sync with this development, the Ifo business climate index continued its decline for the fifth month now, from 101 points in December 2018 to 99.1 points in January 2019 – the lowest since 2016. Also, the ZEW Indicator continued its decrease with another 17.7 points from 45.3 points in December 2018 to 27.6 points in January 2019 – the worst result since January 2015.

To sum up: again in January, the leading economic indicators are pointing to a recession – if not already present to start in this very quarter. And, what do our politicians do? Promise new social entitlements – such as an extension of social support, pensions, etc (cf. here). Although this move shall seemingly serve to counter the right-wing movement of the „Alternative für Deutschland“, the costs for these consumptive measures will not be available for investments later on. Not a good timing – at least.

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