The German economy in October 2021 – autumn doesn’t look too good…

Already the last overview of the German economy for September 21 pointed to an at least slowing economy (here), the question is now, will it remain moving forward at all? But, hey, let’s take a more detailed view on it:

After the the five wise (wo)men („Fünf Wirtschaftsweise„), the official expert panel for Germany’s economic outlook, had already lowered their forecast for 2021 from previously 3.6% GDP-growth to now only 2.4%, the German Bundesbank now puts a further damper on the economic outlook and states that Germany will probably see a stall in economic growth in the fourth quarter of 2021 (here).

Rather unperturbed by this damper, the German DAX, started to rise to (pre-record) levels, starting at 15,156 points on 1 October, ending at 15,68 points on 29 October 2021, gaining 532 points in the process.

German industrial orders resumed – after a crash of -7.7% (! MoM) (but growth of 11.6% YoY) in August 2021- its sometimes tremendous bounce-back after Corona (e.g. an unbelievable +54.3% (YoY) in May) and grew by +1.3% (MoM) / +9.7% (YoY) albeit with a slow pace. There against, Germany’s industrial production, which crashed in the previous month by -4.0% (MoM) / +1,7% (YoY) in August 2021, lost another -1.0% (MoM, but +1.0% (YoY)) in September 2021. Also, German exports,which already stoppedtheir moderate growth already in August, where they declined by -1.2% (MoM, yet grew by 14.4% (YoY)), now lost another -0.7% (MoM, yet still +7.1% in September 2021). 

While the German Target 2 balance gained Euro 78bn (!) in August, it lost Euro 49bn during the course of the month and ended at roughly 1,066bn at the end of October 2021. The German inflation-rate further has increased: from 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, to 3.8% in July, to 3.9% in August, to 4.1% in September and now to 4.5% in October 2021 (each YoY). In a recent statement, the Deutsche Bundesbank warned of an increase up to 6% to the end of 2021 and – after the effects of the reversal of the prior VAT-reduction will recede at the end of this year – still remain elevated over 3% (here, in German).

The German labor market, despite the emerging economic downward trend, remained more than robust and – after an unemployment rate of 5.7% in June and 5.6% in July, the same rate in Augus and 5.4% in September, unemployment declined by another -0.2% to 5.2% in October 2021 or to put it in the words of the Bundesagentur für Arbeit: „The consequences of the Corona crisis on the labor market are still visible, but are becoming smaller.“. Again, corporate insolvencies in Germany were on the decline: after decreasing by -31.1% in January, another -21.8% in February, a further decline of -5.6% in March, another -9% in April, another unbelievable -25.8% in May, another -11.6% in June, another -12.3% in July, they further decreased, albeit with a „one-digit-speed“ only by -2,1% in August 2021 (all YoY).

The leading German sentiment indicators finally „re-synced“ in September 2021 – with a downward trend: While this month the German (Industrial) Purchasing Managers’ Index (PMI), fell by another -0.6 points and ended at 57.8 points on 1 November 2021, the ZEW Indicator (for the current situation) lost 10.3 points points and went from -40.5 points in June, -9.1% in July, to +21,9% in August, to +27.5 points in September, to +31.9 points in October, to now +21.6% in November 2021. Meanwhile, the Ifo business climate index again and further declined, from 101.8 points in June and 100.8 points in July to 99,4 points in August, to 98.8 points in September and now to 97.7 points in October 2021.

To sum up: I will refrain from again citing my July’s summary (here), but – with a short clap on my shoulder to be so on the spot – forecast that we will see an economic growth of less than 3% in 2021 for Germany. Together with a stark rise in inflation, the shortage in raw materials and primary products and generally rising calamities in the world, the stage is now set for a stagflationary scenario for Germany in 2022 – all the more given the „4th wave“ of Corona. To overcome this and get to a growth of 4% in 2022 as forecast by the Wirtschaftsweise will become a very hard job for the incoming Federal Government.

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