The German economy in May 2021 – increased optimism, but…

My last update on the German economy was aptly titled „cautious optimism warranted“ (here) and at first sight it seems that with the receeding pandemic, the economy flows back into its natural habitat. But, hey, let’s take a more detailed view:

No news about the fate of Germany’s GDP for the time being, but given the spreading Delta-variant of COVID-19 and the shortage regarding commodities and chips (cf. here, in German), we should not expect a too fast a recovery to pre-pandemic levels.

The German DAX, starting at 15,236 points on 3 May, followed a zig-zag-course (generally upwards) and ended at 15,421 points on 31 May 2021.

German industrial orders – now really get of the ground: after a small notch upward with +1.3% (MoM) in February, another +1.5% (MoM) in March, the order-books now filled with another +2.9% (MoM) in April 2021. And one would have thought that Germany’s industrial production, after a slower start, with substantial decreases in output of -2.5% (MoM, -3.9% YoY) in January and -1.6% (MoM, -6.4% YoY) in February but a turn to the positive with an increase of +2.5% (MoM, even +5.1% YoY) in March, would now follow suit with another jump in output. But, obviously, the shortage in raw materials, etc. already seems to put a dent into the production figures already now with industrial production DECREASING by -1.0% (MoM) in April 2021! Furthermore, German exports, which steadied their moderate growth in previous months with +1.4% (MoM, -8.0% YoY) in January, +0.9% (MoM; -1.2% YoY) in February and +1.2% (MoM, and even +16.1% YoY!) in March, also lost momentum with a meagre growth of just +0.3% in April 2021. 

The German Target 2 balancea added some Euro 52bn from its Euro 1,024bn in a month and ended at at 1,076bn at the end of May 2021. The rise of the German inflation-rate now gives rise to some serious discussions: from a negative -0.3%, in December 2020 and a respectable 1.0% in January to 1.3% in February to 1.7% in March to 2.0% in April and finally to 2.5% in May 2021 (each MoM; cf. my comments here (in German)). 

With the easing of several corona-related restrictions, the German labor market’s usual spring-uplift gained strength and, after 6.3% of the workforce unemployed in February, 6.2% in March and 6.0% in April, the respective German agency could shed some 84,000 unemployed from its statistics (MoM), so that the number of unemployed fell to 2.687m or 5.9% of the overall workforce. The number of (applications for the commencement of) corporate insolvencies in Germany, is still in free-fall and, after decreasing by -31.1% in January, another -21.8% in February, the national bureau of statistics (Destatis) registered a further decline of -5.6% in March 2021 (YoY, translating into a decrease of -19.7% for Q1/21).

The leading German sentiment indicators, probably with a „view“ to the aforementioned insecurity about supplies, are still inconsequential: While this month the German (Industrial) Purchasing Managers’ Index (PMI), lost another 1.9 points and ended at 64.4 points on 1 June 2021, the ZEW Indicator (for the current situation), after already gaining 6.2 points in April, ending at -61,1, gained another 12.2 points in May, ending at -48.8 points, now gained another 8.3 points and ended at -40.5 points in June 2021. Also, the Ifo business climate index continued its rise from 91.1 points in January to 92.4 points in February to 96.6 points in March to 96.8 points in April and now 99.2 points in May 2021.

To sum up: Overall, the German economy shows a growing optimism, generally indeed warranted by several „hard“ figures. However, the concerns already debated in last month’s issue („there are some obstacles, like shortages in important precursors and raw materials, which might slow down the recovery (for more of this pessemistic view, cf. here (in German))“) seem to be as well warranted as the optimism. If the German economy is not able to considerably increase its output and exports in the next months, the optimism will falter again.

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