Although the case-numbers of people infected with corona were actually increasing in February (cf. here), this issue was put on a backburner even before Russian troups actually started their attack against the Ukraine on 24 February 2022. Hence, even if it was clear that there would be no „freedom day“ as such, even Germany was opening up again. But then, Russia shocked the world. The consequences for the German economy are still not clear. So, hey, let’s take a look at the immediate pre-war status of the German economy:
The world and especially the Germans watched in utter disbelief at the built-up of troops at the Ukrainian border – even beyond the 24 February 2022. Hence, there was literally no assessment as to the impact of the war on the German economy before the beginning of March (which I will obvious cover in the next issue). Hence, the overall picture of the last month for the German BIP, already signalled an incoming „technical recession“ since the the 4th quarter 2021 ended with -0.7% (QoQ) and the first estimates for Q1 2022 pointed to a further (cf. here, in German). Obviously, the situation will now deteriorate further and we will surely see a negative BIP in the first quarter 2022, hence then a technical recession. Whether the German economy as a whole will be able to whether this incoming storm as it did with the GFC and the corona-pandemic, namely a sharp uptick after an intial recession, remains to be seen.
Already prior to the the attack, the German DAX, was declining: From 15,619 points on 1 February to 14,631 points on 23 February, before crashing to 14,052 points on 24 February. Thereafter, the index recuperated swiftly, though, and ended the month with 14,461 points.
German industrial orders continued their upward trend and, after gaining +2.8% (MoM, +5,5% (YoY) in December 2021, incoming orders again increased by +1.8% (MoM; even +7.3% YoY) in January 2022. Also, Germany’s industrial production, which had lost -0.3% (MoM, -4.1% YoY) in December 2021, recuperated and grew by +2.7% (MoM, +1.8% YoY) in January 2022. German exports,on the other hand, which had ended the year on a positive note with +0.9% (MoM, and even +15.6 (YoY)) in December 2021 were declining by -2.8 (MoM, though growing by +7.5% (YoY)) in January 2022.
The German Target 2 balance, though did not budge in February 2022 and ended on nearly exactly the same level as in January at Euro 1,149bn. The German inflation-rate, after lessening the speed of acceleration a bit in January (due to the phasing out of a corona-related VAT-regime in the previous year) again sped up in February: increasing from 1.0% in January (2021) 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 to 5.3% in December 2021, 4.9% in January and 5.1% in February 2022 (each YoY). The supposedly war-related price increases in gasoline will only show up in March – and probably make for a real headache in the inflation-rate.
The German labor market prior to the war was very robust and – after an unemployment rate of 5.2% in October, 5.1% in November and 5.1% in December 2021, 5.4% in January 2022 – the rate (despite the season!) even decreased by 0.1% to 5.3% in February 2022. Also, corporate insolvencies in Germany are still of no concern for the German economy: After declining by -1.9% in September, -2.7% in October), but increasing by +4.6% in November 2021, the number fell by another -4.8% in December 2021 (all YoY).
The leading German sentiment indicators remained „de-synced“: While the German (Industrial) Purchasing Managers’ Index (PMI) declined from 59.8 points on 1 February to 58.4 points on 1 March 2022, the ZEW Indicator (for the current situation) also and further fell, after -7.4 points in January, to now -8.1 points in March 2022. There against, again, stands the Ifo business climate index, which already rose to 95.7 points in January again climbed, now to 98.9 points in February 2022.
To sum up: Despite the „recessionary tendencies“ to be attributed to a (too?) long lockdown and several supply-chain hick-ups, the German economy did not look too bad until the end of February. Maybe the declining export-figures already pointed to the insecurities of the war but that remains a point for the historians. It will equally remain a task for the historians to figure out why the DAX can be on such an elevated level given that with the start of the war all bets are off with regard to the German economy. Personally I think that there are people at work currently who never saw a real crisis and still think that the central banks will ride in for the rescue. Not caring about inflation. Not caring about the war – and its mounting costs. The whole situation reminds me of the typical „Road Runner und Wile E. Coyote„-moment, where coyote is still running although having passed the cliff, a second before he realises that there is no ground but only thin air beneath him. Maybe we can observe not only him but also the German economy realising that they both are going to fall in the next issue.