The German economy in December 2021 – „distressed“​ winter

After there were more questionmarks to the German economy than positive outlooks in November 2021 (here), the ongoing question is, whether it gets better in the foreseeable future. To answer that question, let’s take a more detailed view on the December figures to answer that question:

After the incoming growth figure of only 1.8% growth for the third quarter 2021 already cast a shadow on the German BIP, the first estimates for the overfall growth in 2021 come in with +2.7%, hence slightly better than anticipated, nevertheless a far cry from such figures as forecast at the beginning of the year.

The German DAX, rather unperturbed by the current climate (or still pushed by easy money or both) did not manage to reach its November peak, but nevertheless rallied in December, starting at 15,472 points on 1 December, reaching a a peak of 15,968 points on 28 December, before before losing a bit and ending at 15,884 points on 30 December 2021.

German industrial orders still seem to be in a zig-zag-mode: After a crash of -7.7% ((!) MoM; but growth of 11.6% YoY) in August, but a growth by +1.3% (MoM; +9.7% (YoY)), incoming orders again fell by -6.9% (MoM, but also down -1.0% YoY) in October 2021 and grew now by a considerable 3.7% (MoM; +1.3% (YoY). Again (like in November, but conversely), Germany’s industrial production, which crashed by -4.0% (MoM; +1,7% (YoY)) in August and lost another -1.1% (MoM, but +1.0% (YoY)) in September, then gained 2.8% (MoM, -0.6% YoY) in October, now again lost -0.2% (MoM, -2.4% YoY) in November 2021. German exports,on the other hand, which had declined by -1.2% (MoM, but +14.4% (YoY)) in August and by -0.7% (MoM, yet still +7.1% YoY) in September, before gaining a considerable +4.1% (MoM, even +8.1% YoY) in October, grew by another +1.7% (MoM; and even 12.1% YoY) in November 2021. 

The German Target 2 balance gained a considerable Euro 133bn compared to November ended at roughly 1,260bn at the end of December 2021. The German inflation-rate not only increases, but its speed is also increasing: 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, to 4.5% in October, to 5.2% in November and now to 5.3% in December 2021 (each YoY). Even if the speed of the increase might relax in January 2022, it is hardly fathomable that the inflation rate will soon return within the ECB-bracket set at or around 2.0%.

Again not withstanding the insecurity concerning the further development of the pandemic, the German labor market still remained robust in December and – after an unemployment rate of 5.7% in June, 5.6% in July, the same rate in August, 5.4% in September, 5.2% in October and 5.1% in November – the rate remained at 5.1% in December 2021. Also, the level of corporate insolvencies in Germany remained subdued: after decreasing by -31.1% in January, -21.8% in February, -5.6% in March, -9% in April, -25.8% in May, -11.6% in June, -12.3% in July and by „only“ -2,1% in August and even only -1.9% in September, the decline gained some minor traction again with -2.7% less commencement of corporate insolvency proceedings in December 2021 (all YoY). And again, although not with the eye-popping number of +43.8% as in November, the number of applications for the commencement of regular insolvency proceedings (which include corporate insolvencies) climbed by another 18.0% in December 2021 (MoM). Maybe this is not another one of these statistical glitches. But it’s too early to tell.

The leading German sentiment indicators were in sync in November 2021 – again with a downward trend: While the German (Industrial) Purchasing Managers’ Index (PMI), ended at 57.4 points on 3 January 2022 (albeit a mid-month high), the ZEW Indicator (for the current situation) lost another staggering 19.9 points and went from its peak of +31.9 points in October, over +21.6 points in November, to +12.5 points in December 2021 to now -7.4 points in January 2022. Also, the Ifo business climate index lost another 1.8 points and went from 96,5 points in November to 94.7 points in December 2021.

To sum up: Looking at the GDP growth of (well) under 3.0%, the German economy has hardly be a success story in 2021. However the „hard KPIs“ of orders, production and exports, do allow for a decent outlook for the German economy at the exit of 2021. However, this weak flower will only start to blossom once the Omicron wave lies behind us. But then, other structural differences within the German economy combined with a still rising inflation rate will make for some serious headwinds – even without the Ukrainian conflict escalating. Hence, for the time being, the winter is still harsh.

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