The German economy in October 2022 – things are never as bad as they seem, hopefully

While the war at the eastern and southern front is (not very much but still) progressing in favour of Ukraine, Russia continued its attacks on civil infrastructure unabated (for regular updates, cf. here, in German). After hope for the German economy was (thus) already in short supply in July (cf. here), everything seemed to be in dire straits in August (here) and despair was brewing in September (here), it might be that things won’t indeed turn out as bad as originally thought, at least some hope came up in the course of the month. But, hey, let’s take a closer look on how the German economy fared in October 2022:

After reconing last month that it was only a question of WHEN and HOW HARD the recession would hit Germany’s GDP, we were suprised to learn that the German economy GREW by 0.4% in Q3/22. After some kind of „appeasement“ about the coming recession in the last month (here and here, in German) or the complete demise of Germany (here and here, in German), now headlines forecasting only a „mild“ recession prevail (cf. here, in German).

Methink that we are currently witnessing the longest and strongest „crack-up-boom“ in the history of crack-up-booms: The German DAX managed yet another incredible increase in October: Starting at 11,951 points on 3rd October and closing the month at 13,254 points on 31st October 2022, the index gained 1,303 points (!) in the course of the month.

Meanwhile, German industrial orders decreased in September: after -2.2% (MoM; +2.9% YoY) in February, 0.6% (MoM; and even 20.7% YoY) in March, -2.7% (MoM; -6.2% YoY) in April 2022, 0.1% (MoM; -3.1 YoY) in May, declining by -0.4% (MoM; and even -9.0% YoY!) in June, 0.7% (MoM, +12,6% YoY) in July, 0.3% (MoM, 11.1% YoY) in August, they slightly declined by -0.9% (MoM, but +6.9% YoY) in September 2022. Germany’s industrial production, after a losing streak for two months in a row, recovered: after declining by -3.9% (MoM; -3.5% YoY) in March, rising by 0.7% (MoM, but -2.2% YoY) in April, and gaining 0.2% (MoM, -1.5% YoY) in May, a meagre +0.4% (MoM, but -0.5% YoY) in June, then losing -0.3% (MoM, -1,1% YoY) in July, another -0.8% (MoM, +2.1% YoY, though) in August, production increased by +0.6% (MoM, +2.6% YoY) in September 2022. German exports, were again in a zig-zag-mode in September, with +6.4% (MoM; even +14.3% YoY) in February, -3.3% (MoM, but +8.1% YoY) in March, +4.4% (MoM, +12.9% YoY) in April), -0.5% (MoM, +11.7% YoY) in May, +4.5% (MoM, and even +18.4% YoY) in June, -2.1% (MoM, but still +14.3 YoY) in July, 1.6% (MoM, 18.1% YoY) in August and -0.5% (MoM, but incredible +20.3% YoY) in September 2022. 

The German Target 2 balance, lost some Euro 36bn (!) in the course of October 2022 and ended at Euro 1,230bn. The German inflation-rate, „soldified“ its two-digit-status: starting 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 (2022), 5.1% in February, 7.3% in March, 7.4% in April, and, after 7.9% in May, decreasing to „only“ 7.6% in May and even to 7.5% in June, increasing to 7,9% in August, to 10.0% in September and even 10.4% in October 2022 (each YoY; cf. my most recent evaluation here, in German). However, producer prices, after increasing by nearly 46% in September (after 46% in August), „only“ increased by another +34.5% (YoY, but decreased by -4.2% MoM), from which certain commentators inferred that we are close to „peak inflation“ in Germany (cf. only here, in German). I doubt it.

In the German labor market, which according to the German Department of Labor still keeps its robustness, the unemployment rate – after 5.3% in February, 5.1% in March, 5.0% in April, 4.9% in May, 5.2% in June, 5.4% in July, 5,6% in August and 5.4% in September – decreased by another -0.1% to 5.3% in October 2022. (Applications to commence) insolvencies in Germany continued its well-known statistical zig-zag-move:after a stark rise by 27% in March, a near-equal stark decline by -20.8% in April 2022, another more modest rise by 8.4% in May, then another decline by -7.6% in June, followed by another -4.2% decline in July and an increase by 6.6% in August, a crash by -20.6% in September, now „rebounded“ and rose by 18.4% in October 2022 (cf. my comment, here, in German).

The leading German sentiment indicators remained in sync for October (not a good sign, though): the German (Industrial) Purchasing Managers’ Index (PMI) lost another 2.7 points and stood at 45.1 points on 2 November 2022. The ZEW Indicator (for the current situation) lost another 12.9 points and decreased to -60.5 points in October 2022. The Ifo business climate index, remained unchanged (on a low level) with 84.3 points in October 2022, after 84.3 points in September.

To sum up: In October 2022 industrial orders decreased (by -0.9%), production increased (by +0.6%) and exports declined (by -0.5%, all on a monthly basis), the labor market is still robust, but not remarkibly strong. Despite these rather indifferent figures, strong inflation and rather dismal sentiment indices, the DAX explodes. Why? From which figures it derives the optimism? From a „decrease“ in producer prices? Not really, I hope. The (unexpected) GDP-growth may explain some of the revived optimism. As I read this tea-leaves, mh, figures, though, there might be some cognitive dissonance in the air. I guess reality and sentiment will re-merge in the coming winter months.

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