The German economy in September 2023 – slippery sentiment

Already in May the German economy was going south with astonishing speeed  (here), however, larger parts of the public only realised that in June (here) but were still seeing a „b(e)acon of hope“ in July (here) and did not really lose their cognitive dissonance in August (here). So, let’s take a closer look at the how German economy fared in September:

Concrete figures as to the development of German GDP for the third quarter 2023 are still not out yet, but already now the Bundesbank admits that the German economy had shrunk (here). The „economic wise (wo)men“ („Wirtschaftsweise“) now even forecast a slump of up to -0.6% for the whole year 2023 (here, in German).

The DAX price index (for an explanation, why I prefer this index now, cf. here), started with 6,268 points on 1 September and then went with some detours down to 6.088 points on 29 September 2023. Optimism is in short supply now at the stock exchange.

German industrial orders – after their strong decline in the previous month managed a meaningful recovery: after crashing by -11,7% in July 2023 (MoM, -10.5% YoY), they gained +3.2% (MoM, however still -4.2 YoY). There against, Germany’s industrial production declined further: after -0.2% (MoM, +0.7% YoY) in May, -1.5% (MoM, -1.7 YoY) in June and -0.8% (MoM, -2.3% YoY) in July, production declined by a further -0.2% (MoM, even -2.0%) in August 2023. German exports also declined further, after -0.1% (MoM, -0.7% YoY) in May, +0.1% (MoM, but -1.9% YoY) in June and -0.9% (MoM, -1.0% YoY) in July, they lost another -1.2% (MoM, and even -5.8% YoY) in August 2023. For other German KPI’s, I refer you to the „Destatis Deutschland-Dashboard“ (here) and (new!) the „Data Commons (Germany)“ (here).

The German Target 2 balance slightly decreased by roughly Euro 14bn in September 2023 and ended at Euro 1,048bn. The German inflation-rate strongly decreased in September2023: starting from its peak of 10.4% in October 2022, the rate started to decrease, first to 10.0% in November, 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 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 to 6.1% in August and now again strongly declining to 4.5% in September 2023 (each YoY, my most recent comment here, in German).

The German labor market stabilised, but nothing to be seen from the usual autumn jump in employment: the unemployment rate – after 5.5% in May and also 5.5% in June, then increasing to 5.7% in July and even 5.8% in August – managed to slighty decline to 5.7% in September 2023. German insolvency filings increased for the fifth time in a row now: After increasing by 3.1% in May, by  another 13.9% in June, even by another 23.8% in July, then by another 13.8% in August, they increased by another 19.5% in September 2023 (all YoY; cf. my most recent comment, here, in German)!

The leading German sentiment indicators, again, as in the previous month, show a mixed outcome for September 2023: The German (Industrial) Purchasing Managers’ Index (PMI) gained another 0.5 points and stood at 39.6 points on 2 October 2023. There against, the ZEW Indicator (for the current situation) lost another 8.1 points in September and stands at -79.4 points. Also, the ifo Business Climate Index, lost another 0.1 points and ended at 85.8 points in September 2023.

To sum up: Does the German economy already bottom out? While a growing order book and levelling sentiment indices might indicate just that, other factors do not: Insolvencies may be a lagging indicator, but – especially when comparing to neighbouring countries (cf. the specific comments I linked) – imho the „insolvency wave“ just started. Absent another stop to the early filing requirement by the German government, those figures will further rise – as will the also lagging factor of the unemployment rate. Given the current multiple crisis I also do not see especially energy prices coming down soon. Hence, inflation, even if the rate of increase is not so steep anymore, is now backed into the system and will continue its destructive work. In summary, I think that any hope of the German economy bottoming-out based on stabilising orders and sentiment indices is premature. Rather, the slippery slope the German economy has the horror to find itself on, will continue.

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