The German economy in July 2020 – the sky is the limit! Sure?

After the German economy bottomed out in May (cf. here) and started its rebound in June (cf. here), most parameters indicate that the German economy is recuperating rather swiftly. But, hey, let’s look into the German economy in some more detail:

As expected, the German GDP REALLY crashed in Q2/2020 – by 10.1% (QoQ; even 11.7% YoY), after already decreasing by 2.2% (QoQ) in the Q1/2020. And this despite a record in rescue programs, like Kurzarbeitergeld.

The DAX, however, while ending the month on roughly the same level as it entered (starting at 12,260 points on 1 July, ending at 12,313 points on 31 July 2020), it took a wild swing and reached 13,171 on 21 July 2020, only to lose 800 points in the remaining 10 days.

German exports, which already made a rebound (at least on a MoM-basis with +9% (but still -29.7% (YoY)) in May, continued their rise, albeit with even more speed and gained another 14.9% in June 2020 (MoM, but still -9.4% (YoY)). After having exploded by Euro 79 Billion to Euro 995 Billion in June, the German Target 2 balance increased by another rather modest Euro 16 Billion, but passed the psychologically important landmark of Euro 1 Trillion (Euro 1.019 Trillion). After only slightly increasing in the previous months, the German inflation-rate also crossed a psychologically important landmark – and went negative with -0.1% in July 2020. 

Again mirroring the rebound in exports, German industrial orders, which already rebounded at least on a MoM-basis, with an increase of 10.4% (MoM, but still an eye-watering -29.3% YoY) in May 2020, skyrocketed with a +27.9% (MoM; but still down -11.3% YoY) in June 2020. The same goes for Germany’s industrial production, which had rebounded by +7.8% (MoM; but still cratering by -19.3% (YoY) in May and grew by another 8.9% (MoM, but still -11.7% YoY) in June 2020. 

The wounds Corona leaves in the German labor market are getting bigger: After May where the unemployment rose by 169K and the rate by 0.3% to 6.1%) and June with an increase of the unemployed by another 40,000 and the unemployment rate increasing to 6.2% , another 57,000 unemployed were added to the statistic, so that the total is with 2.910K rather close to the 3 million mark and the percentage unemployed is at 6.3% . A slight silver-lining, though, is that the number of employees receiving „Kurzarbeitergeld“ is now decreasing. Still unbelievable, German corporate insolvencies further continued their freefall by another by 9.9% (YoY) in May 2020 .

The leading German sentiment indicators, again, rebounded strongly: the German (Industrial) Purchasing Managers’ Index (PMI), after gaining 2.1 points in June and 8.9 points in July, gained another 5.8 points and ended at 51.0 points on 3 August 2020. There against, the ZEW Indicator (for the current situation) took a small set back to -81.3 points in August 2020. Finally, the Ifo business climate index further recovered from its April lows of 74.3 points, to now 90.5 points in July 2020.

To sum up: Is the GErman economy on its way to a V-shaped recovery – like in 2010, as it rebounded strongly from the aftermath of the Great Financial Crisis? Looking at the MoM-figures, this picture indeed seems to become clearer. However, looking at the sometimes still dismal YoY-comparison, the picture becomes less colourful. Overall, the German economy is still lagging behind its pre-year figures – and not to a small extent. Hence, it seems likely that also Q3 will – on a YoY-basis – be dismal. And it is not totally unlikely that also Q4 will not see any YoY-increase – the consequence being that Germany might see a GDP-decline of or around 10%. And since this decline was cushioned with a record-amount of subsidies already, even that decline will not give a picture of the actual situation. This picture will materialise when the bill goes around for the price to be paid for this crisis. As was the case after the GFC. Hence, yes, Germany’s economy is rebounding somewhat from the deep trenches of this crisis, however, it is far from being out of the woods.

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