The German economy in July 2021 – let’s hope for a better autumn

The last overview of the German economy for June 2021 wished us all a relaxed summer (here). So, hey, let’s take a more detailed view whether we still can be relaxed:

Germany’s GDP in the second quarter of 2021 grew by a mediocre 1.5% (QoQ), but economic performance still remained 3.4% below pre-crisis level. Given the decline of -1.8% (QoQ) in the first quarter of 2021, it is hard to fathom how Germany’s economy may reach the 3.x% growht as anticpated for 2021 by several pundits (and the government).

The German DAX, starting at 15,603 points on 1 July, followed another zig-zag-course (with a real mid-month crash to 15,133 points on 19 July) before ending at 15,544 points on 31 July 2021, thus losing a mere 41 points in the course of the month.

German industrial orders strongly rebounded: after a growth of +1.5% (MoM) in March, another +2.9% (MoM) in April, a decline by -3.7% (MoM), but unbelievable +54.3% (YoY) in May 2021, they grew by 4.1% (MoM) and 26.2% (YoY) in June 2021- wich set a new record. However, again, Germany’s industrial production, after a positive +2.5% (MoM, even +5.1% YoY) in March, but a decrease by -1.0% (MoM) in April and -0.3% (MoM) in May 2021, took – probably due to the shortage of several raw materials and products, like microprocessors – a further turn to the worse with -1.3% (MoM; though +5.1% (YoY) in June 2021. Furthermore, German exports further continued their moderate growth of the previous months with +1.3% (MoM; and even +23.6% YoY) in June 2021 (after +1.2% (MoM, +16.1% YoY!) in March, +0.3% (MoM) in April and again +0.3% (MoM) in May 2021). 

The German Target 2 balance shed some astounding Euro 72bn during the course of the month and ended at roughly 1,025bn at the end of July 2021. The rising trajectory of the German inflation-rate has not only been maintained in the last month: 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, to 2.5% in May, to 2.3% in June, the rate rose by 3.8% in July 2021 (each YoY, sorry that was wrong in the last issue). 

The German labor market, in contrast, continued its positive trajectory and after 6.0% of the workforce were unemployed in April, 5.9% in May and 5.7% in June, there were another 24,000 unemployed shed from the roll, there being now 2.590m still unemployed which equals an unemployment rate of 5.6% in July 2021. The number of (applications for the commencement of) corporate insolvencies in Germany continued its free-fall rather unabeted and, after decreasing by -31.1% in January, another -21.8% in February, a further decline of -5.6% in March (YoY, translating into a decrease of -19.7% for Q1/21), another -9% (YoY) in April, business insolvencies crashed by another unbelievable -25.8% (YoY) in May 2021.

The leading German sentiment indicators, „de-synced“ again considerably: While this month the German (Industrial) Purchasing Managers’ Index (PMI), rose by another 0.8 points and ended at 65.9 points on 2 August 2021, the ZEW Indicator (for the current situation), after already considerably gaining in the the last months, took another sharp upward turn, gaining another 31 points and went from -40.5 points in June, -9.1% in July to +21,9% in August 2021. Meanwhile, the Ifo business climate index corrected some of its euphoria from last month and declined from 101.8 points in June to 100.8 points in July 2021.

To sum up: While incoming orders and exports seem to be on a good way, production – with its obvious problems in the supply chain – remains a source of concern for the German economy. And this bottleneck of supply is probably responsible for most of the increasing inflation. Given the continued problems with chinese and other harbours, this problem will probably also not go away in the short term, at least. Hence, it is foreseeable that it will take its toll – either by cutting production or increasing prices, or both (!). Keeping these circumstances in mind, the curent forecast of a 3.x% growht of the German economy (which is not really outstanding compared to other economies) seems already ambitious, even before taking into account any new problems related to Corona or any fallout from the Taliban’s victory in Afghanistan. So, let’s hope for a better autumn…

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