The German economy in October 2019 – against all odds…

… seems to be an appropriate title for this month monthly: Given the last minute’s escape from a „technical recession“, combined with the latest data, last month’s asssessment that a plateau to the recession might be nigh (cf. here), is actually supported. However, some crucial facts and my gut-feeling (sorry, this is not really scientific, I know) point in another direction. But, hey, let’s look into the German economy in some more detail:

Germany – though narrowly – escapes a technical recession (meaning two consecutive quarters with „negative growth“) by growing it’s GDP by 0.1% in the 3rd quarter of 2019. Magic! Really?

The DAX further advanced on its gains made in September and proved that the „autumn-rally“ is alive and kickin‘: Despite the clear indications of an upcoming recession, the German DAX , after closing at 12,428 points on 30 September 2019 it again jumped another 438 and closed at 12,866 points on 31 December 2019 (here).

Also, German exports, took a turn for the better and, after contracting by -1.8% (MoM) and -3.9% (YoY) in August, they gained 1.5% (MoM) and even 4.6% (YoY). Also, after adding Euro 17 Billion in August, the German Target 2 balance shredded around Euro 78 (!) Billion and reached Euro 837 Billion in the end of October 2019. Meanwhile, the increase of the German inflation-rate further declined from 1.7% (YoY) in July to 1.4% (YoY) in August to 1.2% in September and now in October 2019 only 1.1%.

While improving in the last month, Germany’s industrial production, again, took a turn for the worse with a decrease of -0.6% (MoM) and even of -4.3% (YoY), after +0.3% (MoM; -4.0% (YoY)), in August and -0.6% (MoM) / -4.2% (YoY) in July 2019. With a view to the question of last, whether industrial production has plateaued, albeit on a low level, the answer seems to be „no“. However, since German industrial orders climbed by 1.5% (MoM), but falling by -5.4% (!) (YoY) in October, after a decline of -0.6% (MoM) and 6.7% (YoY) in August 2019, the answer might not be so clear in the end.

German unemployment-rate decreased by another 30,000 (MoM), but by ZERO (!) on an annual basis (for the first time in my recordings which now span around five years!) to now 2.204m unemployed, the unemployment rate sinking from 4.9% in September to 4.8% in October 2019. Although the job market is still robust it has lost its dynamics. 

German corporate insolvencies, after tepidly rising by 0.2% (YoY) in July climbed another 0.6% in August 2019 – still not a trend reversal, but at least noticeable – especially in the context of an indisputably cooling economy.

The leading German sentiment indicators, despite not being totally in sync, still also point to a recession: the German (Industrial) Purchasing Managers’ Index (PMI) slightly increased from 41.7 on 1 October to 42.1 points on 4 November 2019. The current status of the ZEW Indicator, lost another 0.3% in comparison to October and is now down to -22.8 points in November 2019. The Ifo business climate index, remained unchanged with 94.6 points in October 2019.

To sum up: Not only GDP development, but also other indicators point to a plateau in Germany’s economic downturn – at least for the fourth quarter. Hence, the pundits arguing for a mild recession only might be proven right. However, given recent monetarian activities by the ECB, Fed and PBOC, it seems that central banks have a rather high influence in this stabilising operation. This does not really lead to optimism for the longer-term future.

CU next month!

Volker Beissenhirtz

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