The German economy in April 2023 – have we seen the best already?

After enjoying a  „promising start“ in January (here), a serious damper in February (here), the March outlook (here) proved to be too optimistic – even considering my caveats already at that time. But hey, let’s take a closer look:

With regard to the German GDP, Destatis had to retreat on its own previous figures: While the institute stated in April that the German economy stalled (here), they had to admit in May that it indeed shrank by -0.3% in the first quarter 2023. Since the German economy already shrank by -0.4% in the last quarter of 2023, German surprisingly finds itself already now in a technical recession. Given the fact that several economists predicted a recession for the 2nd half of 2023 already before the new data, the forecasts of the German leading economic institutes of a growth of 0.3% (here) and the government’s of a 0.4% growth (here) indeed seem to be too optimistic while the IMF forecasts of a decline of -0.2% of the German economy (here) seems more realistic. 

Obviously still believing in the Destatis April figures, the German DAX rose in April 2023 – from 15,623 points points on 3rd April to 15,884 points on 28 April, thus gaining 261 points.

After a promising start into the year so far, German industrial orders, fortunately, CRASHED: after 1.0% (MoM, but -10.9 YoY) in January and even 4.8% (MoM, -5.7% YoY) in February 2023, orders cratered in March 2023 with -10.7% (MoM, -11.0% YoY). Also, Germany’s industrial production declined: after  +3.5% (MoM, but -1.6% YoY) in January and 2.0% (MoM, +0.6% YoY) in February,  production decreased by -3.4% (MoM, but +1.8% YoY) in March  2023. Finally, German exports declined, too, after +2.1% (MoM, and even 8.6% YoY) in January and +4.0% (MoM, +7.6% YoY) in February, exports declined by -5.2% (MoM, but +5% YoY) in March 2023. For other German KPI’s, I again refer you to the „Destatis Deutschland-Dashboard“ (here). 

The German Target 2 balance, also crashed – by an incredible Euro 89bn in the course of April 2023 and ended at Euro 1,081bn. Also the German inflation-rate further declined in April 2023: 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, the rate started to decrease, first to 10.0% in November and further to 8.6% in December 2022, again increased to 8,7% in January (2023), where it remained (8.7%) in February, before slumping down to „only“ 7.4% in April and to 7.2% in April 2023 (each YoY, my most recent comment here, in German).

The German labor market remained robust also in April, but the ususal spring revival is still not coming and the unemployment rate – after 5.7% in January, also 5.7% in February and 5.7% in March remained at 5.7% also in April 2023. German insolvency filings, which declined by –3,2% in January 2023, rose by 10.8% in February 2023 and rose in March 2023 by 13.2%, declined in April by -14.1% (MoM; however, business filings increased; cf. my most recent comment, here, in German)!

The leading German sentiment indicators were largely in sync in April 2023: German (Industrial) Purchasing Managers’ Index (PMI) lost 0.2 points and stood at 44.5 points on 2 May 2023. The ZEW Indicator (for the current situation) for April 2023 rose by 14.0 points to -32.5 points. The ifo Business Climate Index, which rose from 86.3 points in November 2022 to 93.3 points in March further rose to 93.6 points in April 2023. Already looking at the May sentiment figures, I can tell you, though, it will get ugly.

To sum up: In the last months, we have possibly seen the best of the German economy for 2022. Given the current rather erratic politicial decisions, Bloomberg’s dramatic headline, „Europe’s Economic Engine Is Breaking Down“ might prove to be prophetic: Not only is Germany already in a („technical“) recession, but ALL hard KPI went south at the end of the last quarter and the coming monthly will see a red light on EVERY sentiment indicator as well. Fittlingly, the DAX will reach its ATH in May, too. And then that’s it for 2023? Probably yes. Although I share the motto of my favorite blogger (Wolf of Wolfstreet, here) that „nothing goes to heck in a straight line„, I can only re-iterate my last month’s rather pessimistic outlook: „Hence, I wouldn’t and personally I don’t bet on a positive outcome for the German economy but rather stick to the IMF forecast which combined with a still high inflation rate would indeed embody the feared stagflationary scenario. Personally, I do not think though, that 2023 is relevant, rather, we have set the conditions for the years to come. And there is a real risk that they are worse than 2023.

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