The „b(e)acon of hope“ in July (here) proved to be rather a cognitive dissonance in August (here) which led to a slippery slope in September (here) and in October, hope was definitely fading for the German economy (here). So, let’s take a closer look at the how the year nears its closing in November:
After the- German GDP contracted in the 3rd quarter 2023 by -0.1% (QoQ) already, the pundits assess that Q4 will see a further contraction and an overall decline of the German economy also in 2024 (cf. Creditreform here, Deutsche Bank here, IW Köln explicitly forecasts a recession for Germany in 2024, here).
Undisturbed by this gloomy sencario, the DAX price index (for an explanation, why I prefer this index now, cf. here) started its year-end-ralley, starting at 5,905 points on 1 November and relentlessly rising to 6,416 points on 20 November 2023.
The fomer recovery in German industrial orders is reversed: after crashing by -11,7% in July 2023 (MoM, -10.5% YoY), then gaining +3.2% in August (MoM, however still -4.2 YoY) and growing by a mere 0.2% in September (MoM, still -4.3% YoY), orders declined by -3.7% in October 2023 (MoM, even -7.3% (!) YoY). Germany’s industrial production, too, remains in recessionary territory: after -0.8% (MoM, -2.3% YoY) in July and -0.2% (MoM, even -2.0%) in August, another -1.4% in September (MoM, -3.7% YoY), production declined by another -0.4% in October 2023 (MoM, -3.5% YoY9. Also, German exports further decreased, after -0.9% (MoM, -1.0% YoY) in July and -1.2% (MoM, and even -5.8% YoY) in August, –2.4% in September (MoM, even -7.5% YoY (!)), they decreased by another -0.2% in October 2023 (MoM, even -8.1% YoY). For other German KPI’s, I refer you to the „Destatis Deutschland-Dashboard“ (here) and (again!) the „Data Commons (Germany)“ (here).
The German Target 2 balance slightly increased by roughly Euro 2bn in September 2023 and ended at Euro 1,060bn. The decline of the German inflation-rate continues: 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, even to 4.5% in September, to 3.8% in October and 3.2% in November 2023 (each YoY).
The German labor market stabilised, but still nothing to be seen from the usual autumn jump in employment: the unemployment rate – after 5.8% in August and again 5.7% in September and 5.7% in October – slightly decreased to 5.6% in November 2023. German insolvency filings increased for the seventh time in a row: After 3.1% in May, 13.9% in June, 23.8% in July, 13.8% in August, 19.5% in September, 22.4% in October, they rose by another 18,8% in November 2023 (all YoY; cf. my most recent comment, here, in German)!
The leading German sentiment indicators, seem to indicate a certain plateauing in October 2023: The German (Industrial) Purchasing Managers’ Index (PMI) gained another 1.8 points and stood at 42.6 points on 1 Deczember 2023. The ZEW Indicator (for the current situation) gained a mere 0.1 points and was at -79.8 points on 1 December. The ifo Business Climate Index, too, gained another 0.4 points and ended at 87.3 points in November 2023.
To sum up: As in the previous months, while the „hard KPI“ – orders, production and exports – paint a bleaker and bleaker picture of the Germany economy also in November 2023, the German sentiment indicators now even give the impression that the worst is over for the German economy.
However, as already pointed out in the last month, my assessment still is that most of the sentiment stated above is based on pure hope, not data („the economy can only crash so far“). Also the just agreed-upon budget of the traffic-light coalition will prove to be „challenging“ for the German economy. Hence, I agree with the IW and now definitely predict a recession for the German economy in 2024 – after a recessionary 2023. The last time, Germany saw a recession spanning over the course of two years was in 2001 to 2003 (here, in German). We Germans know what happened next.