Throughout the last month, the bad news kept indeed (cf. here) constantly flowing in like waves on a beach. Given the easing of the lockdown and the first tentative steps to reopen the economy at the end of May the question is whether the German economy already bottomed out. To get a grip on that, let’s look into the German economy in some more detail:
Throughout the month, the pundits paid tribute to their earlier, more optimistic forecasts and lowered their expectations regarding the German GDP in 2020. E.g., the „economic wise (wo-)men“ („Wirtschaftsweise“), counsellors to the German Government regarding the economic development, lowered their expectations from a decline of -2.8% to now -6% or -7% for the GDP in 2020 (here, in German).
Again, fuelled by central bank money, the DAX rallied in the second half of the month like there’d be no tomorrow (which is probably more true than anybody realises): Starting at 10,466 points on 4 May, the index first fell to 10,337 points on 14 May only then to start a rally of more then 1,200 points to 11,553 points on 29 May 2020 (here).
There against, German exports, already crushed in March 2020 by -7.9% (YoY and -11.8% MoM), cratered by an unbelievable -31.1% (YoY; -24.0% MoM) in April 2020. Despite the stark decrease in exports, the German Target 2 balance only declined by roughly Euro 3 Billion to roughly Euro 916 Billion. The German inflation-rate further sunk to now 0.6% (after 0.9% in April, 1.4% in March and 1.7% in February 2020 (all YoY). As in the previous months, the decline in prices for energy were offset by the continuous rise in food-prices.
Mirroring the crash in exports, German industrial orders, which already crashed by -15.6% (!) (MoM) and even -16.0% (YoY) in March took another turn to the worse and crashed to -25.8% (MoM) and even -36.6% (YoY) in April 2020. No wonder, hence, that Germany’s industrial production, after crashing by –9.2% (MoM) and even -11.6% (YoY) in March declined by another -17.9% (MoM) and even -25.3% (YoY) in April 2020.
The German labor market, getting really hit by corona in April (unemployment-rate increasing by 308,000 to then 2.644m unemployed, the unemployment rate increasing by 0.7% to 5.8%) had a rather weak increase with „only“ another roughly 169K unemployed added (MoM), the unemployment rate rising by 0.3% to 6.1% at the end of May 2020. Again, the impact of corona was softened by the German „Kurzarbeitergeld“ whose figures have, according to the Bundesagentur für Arbeit, already surpassed the figures attained during the Great Financial Crisis. Due the „COVInsAG“ (which I already explained here) and the largest bailout of companies in Germany ever, German corporate insolvencies, went into freefall with another by -2.3% in March 2020 and thus falling by a total of 3.7% in the 1st quarter of 2020 (here).
The leading German sentiment indicators, after having already indicated the afore-described economic crash, indicate an even deeper dive: the German (Industrial) Purchasing Managers’ Index (PMI), after having lost a staggering 10.9 points in April and ending at 34.5 points on 4 May, gained 2.1 points and ended at 36.6 points on 1 June 2020. The ZEW Indicator (for the current situation) remained below –90 points in May 2020, however, forecasting an upswing of the economy for the 4th quarter 2020 Also, the Ifo business climate index slightly recovered from its April crash of 74.3 points to 79.5 points in May 2020.
To sum up: Looking at the industrial KPI’s (exports, orders, production), the month of April 2020 clearly marked a significant low point of the German economy. It might be that indicators, though, will already reflect to some extend the (if only slightly) rising sentiment indicators. So, there is indeed a silver lining now. However, the whole economy has crashed to such an extend that it is not really hard that the GDP in the 2nd quarter of 2020 will crater in the two-digit territory. And it is hardly fathomable that the GDP will show anything more than a modest growth towards the end of the year. The crisis is upon us – and it will take years for the economy to swing back.