The German economy in August 2023 – still in Lala Land or is cognitive dissonance easing?

After being too optimistic in March (here), realising that we have seen the best (for 2023) already (here) in April and that the German economy seems to go south with astonishing speeed in May (here), larger parts of the public finally realised in June that the economy is indeed stalling (here), but in July still seeing a „b(e)acon of hope“ (here) . So, let’s take a closer look at the German economy whether this hope is still warranted in August:

The consensus among pundits now is that the German GDP will shrink by up to -0.5% in in 2023 (here), however, the decline is not evenly distributed – while the state of Brandenburg grew by 6.0% in the 2nd quarter 2023, the state of Rhineland-Pfalz lost 5.4% in the same time-frame (here). Also, the federal government seems to be still in LaLa-Land, forecasting a growth of 0.4% in 2023 and 0.8% in the years to come (here).

The DAX price index (for an explanation, why I prefer this index now, cf. here), started with 6,426 points on 1 August, reached its lows on 18 August with 6,162 points before ending the month at 6,310 points. Seemingly, the stock brokers had a little bit of hope left in August.

German industrial orders – which served as a backbone to the hope of the last months – saw the strongest decline in three years (here): after recovering by +6.4% (MoM, – 4.3% YoY) in May and even by +7.0% (MoM, still 3.0% YoY) in June, they crashed by -11,7% in July 2023 (MoM, -10.5% YoY). Again, Germany’s industrial production declined : after -0.2% (MoM, +0.7% YoY) in May and a further -1.5% (MoM, -1.7 YoY) in June, production declined by -0.8% (MoM,  -2.3% YoY) in July 2023. The automotive sector alone crashes by over -9% (here).German exports resumed their downward trend, after -0.1% (MoM, -0.7% YoY) in May, +0.1% (MoM, but -1.9% YoY) in June, they lost -0.9% (MoM, -1.0% YoY) in July 2023. For other German KPI’s, I again refer you to the „Destatis Deutschland-Dashboard“ (here).

The German Target 2 balance slightly increased by Euro 4bn in August 2023 and ended at Euro 1,062bn. The German inflation-rate slightly decreased in August 2023: starting from ist peak of 10.4% in October 2022, 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 „crashing“ to 6.1% in May, going up again to 6.4%, decreasing to 6.2% in July and now 6.1% in August 2023 (each YoY, my most recent comment here, in German).

The German labor market – (hopefully only) continued its seasonal slump seems: the unemployment rate – after 5.5% in May and also 5.5% in June – increased to 5.7% in July and even 5.8% in August 2023. German insolvency filings increased for the fourth time in a row now: After increasing by 3.1% in May, by  another 13.9% in June and even by another 23.8% in July, they rose by another 13.8% in August 2023 (all YoY; cf. my most recent comment, here, in German)!

The leading German sentiment indicators show a mixed outcome for August 2023: The German (Industrial) Purchasing Managers’ Index (PMI) gained some lousy 0.3 points and stood at 39.1 points on 1 September 2023. There against, the ZEW Indicator (for the current situation) for August 2023 decreased by more than 11 points and stands at 71.3 points. Also, the ifo Business Climate Index, lost another 1.7 points and ended at 85.4 points in August 2023.

To sum up: Last month, I kept my head up regarding the German economy with the then growing order book of the German industry as well as the hope „in September – when holidays are largely over – the well-known „autumn-boom“ kicks in to carry the German economy through the rest of the year.“ Given the stark decline in new orders and the not really positive outlooks of several pundits for the rest of 2023 and 2024, this hope, though, wanes. Time to wake up from LaLa-Land. With a view to the ever increasing chorus of pessimists (cf. only The Economist „Is Germany once again the sick man of Europe?“, here), there is still a chance, though, that the chancellor, Mr. Scholz, wakes up to his task as his predecessor, Mr. Schroeder, did in the beginning of the 2000’s.

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