While we were seemingly a little too optimistic in March (here) and I feared in April that we have seen the best already (here), the German economy seems to go south with astonishing speeed now. But hey, let’s take a closer look at how it fared in May:
After the German GDP surprisingly contracted by -0.3% in the 1st Quarter of 2023, the German economy finds itself in a technical recession already now – and the news are not really getting better: The OECD sees a contraction of the German economy in 2023 – putting the development only a notch ahead before Russia’s (here); the same goes for the German institute RWI (here, in German) and Deutsche Bank (here). The IMD, Lausanne, downgrades Germany considerably on its ranking on competitiveness (here, in German). The German IFO-Institute shows how the construction sector is crashing (here), while the BDI is lamenting about German enterprises fleeing Germany (here, in German). Not really surprisingly the FT warns that investors might turn their back on Germany (here).
Despite the growing concerns about the German economy, the German DAX at first further rose in May 2023 – from 15,950 points on 2nd May to an ATH of 16,233 points on 19 May before returning to 15,757 points on 31st May, thus in fact losing 193 points in the course of the month.
German industrial orders further declined, though moderately: after cratering in March 2023 with -10.7% (MoM, -11.0% YoY), orders decreased by another 0.4% (MoM, -9.9% YoY). On the other hand, Germany’s industrial production rose – but also only moderately: after -3.4% (MoM, but +1.8% YoY) in March, production rose by a meagre 0.3% (MoM, 1.6% YoY) in April 2023. Finally, German exports also increased, after -5.2% (MoM, but +5% YoY) in March, exports gained further 1.2% (MoM, 1.5% YoY) in April 2023. For other German KPI’s, I again refer you to the „Destatis Deutschland-Dashboard“ (here).
The German Target 2 balance, barely moved in May 2023 and ended at Euro 1,081bn again. Also, the German inflation-rate further declined in May 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 March and to 7.2% in April, before now „crashing“ to 6.1% in May 2023 (each YoY, my most recent comment here, in German).
The German labor market – especially given the fact that the population living in Germany increased by 1.4m in 2022 alone (here, in German) – still remains surprisingly robust also in May, the unemployment rate – after 5.7% in March and also 5.7% in April – decreased to 5.5% in May 2023. German insolvency filings, which rose by 10.8% in February 2023 and even by 13.2% in March, then declined in April by -14.1%, increased by another 3.1% in May 2023 (all MoM; cf. my most recent comment, here, in German)!
The leading German sentiment indicators were largely in sync in May 2023: The German (Industrial) Purchasing Managers’ Index (PMI) lost 1.3 points and stood at 43.2 points on 1st June 2023. The ZEW Indicator (for the current situation) for May 2023 lost 2.3 points and stands at -34.8 points. After six consecutive rises, even the ifo Business Climate Index, which rose from 86.3 points in November 2022 to 93.6 points in April, lost 1.7 points and ended at 91.7 points in June 2023.
To sum up: While the hard KPI’s of the German economy where only a notch weaker or remained stable, the synchronised decline of the sentiment indicators already mirrors the dark outlooks several pundits and not-so-pundits presented during the last weeks. As I said earlier, though, it is less important whether Germany indeed escapes a recession in 2023 (here), the problem rather is that all levers regarding long-term development point in the wrong direction. It might be a long way until the „Green Economic Miracle“ (here) is going to appear.