The German economy in June 2020 – rebound?

While in May it seemd that the corona-related crash of the German economy had already bottomed out (cf. here), the data for June 2020 even shows the first signs of a possible rebound. But, hey, let’s look into the German economy in some more detail:

No new data on the development of the German GDP in Q2/2020 is available. So, NTP (nothing to report) here.

Starting at 12,021 points at 2nd June, the DAX gained traction and reached 12,847 points already on 5th June. Probably already influenced by the Wirecard-crisis, the index then took a more volatile path, ending the month at 12,310 points on 30th June 2020 (here).

After crashing in the previous months (March 2020 by -7.9% (YoY and -11.8% MoM, April 2020: -31.1% (YoY; -24.0% MoM), German exports, made a sharp rebound (at least on a MoM-basis) with +9% (MoM, but still -29.7% (YoY)). Meanwhile, the German Target 2 balance exploded from Euro 916 May to Euro 995 Billion in June 2020 – an incredible increase of Euro 79 Billon! The German inflation-rate slightly increased to 0.9% in June 2020 (after 0.6% in May, 0.9% in April, 1.4% in March and 1.7% in February 2020 (all YoY)).

Again, mirroring the rebound in exports, German industrial orders, which crashed to -25.8% (MoM) and even -36.6% (YoY) in April and by -15.6% (!) (MoM) and even -16.0% (YoY) in March 2020, now rebounded at least on a MoM-basis, with an increase of 10.4% (MoM, but still an eye-watering -29.3% (YoY), in June 2020. The same goes for Germany’s industrial production, which, 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, rebounded by +7.8% (MoM; but still cratering by -19.3% (YoY) in May 2020. 

The traces of Corona leave deep traces in the German labor market, which got really hit since April (unemployment-rate increasing by 308,000 to then 2.644m unemployed, the unemployment rate increasing by 0.7% to 5.8%) and further in May 2020 (the unemployment raising by 169K and the rate rising by 0.3% to 6.1%) took a, somewhat less strong, hit with an increase of the unemployed by another 40,000 (MoM) and the unemployment rate increasing to 6.2% in June 2020. And still, the impact of corona was softened by the German „Kurzarbeitergeld“ which – according to the Bundesagentur für Arbeit, was granted to more than 6m employees until April 2020! Rather unbelievably, German corporate insolvencies, continued their freefall albeit with a slower pace, and decreased by with another by -8.6% in June 2020 and thus probably falling by a total of -8% in the 1st half of 2020 (here, in German).

The leading German sentiment indicators, strongly follow the rebound in exports and orders: the German (Industrial) Purchasing Managers’ Index (PMI), after gaining 2.1 points at the beginning of June, gained an unbelievable 8.9 points and ended at 45.5 points on 1. July 2020. Also, the ZEW Indicator (for the current situation) took a small rebound from –93.5 points in May to -83.1 points in June 2020. Finally, the Ifo business climate index strongly further recovered from its April crash of 74.3 points to 86.2 points in June 2020 (after 79.5 points in May 2020). This is the strongest increase ever recorded.

To sum up: The silver lining indicated in my last monthly indeed materialised. Although from an all-time low, the German economy started to rebound in June. However, the respective YoY-comparisions show how deep the economy crashed in the first place. Hence, the GDP in the 2nd quarter of 2020 will still crater in the two-digit territory and at least a one-digit decline over the whole of the year. And also in talks with personnel from banks and the industry it becomes clear that they see a) an incoming wave of insolvencies (I do still not believe it) and b) a time-frame until at least 2024 until the level originally foreseen for 2020 will be reached. Hence, patience is a virtue….

Keep calm & carry on!

Volker Beissenhirtz

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