The German economy in December 2023 – end of the illusion

As the newly published German GDP-figures (see below) drastically prove, the year 2023 did indeed not not provide for a happy-end for the German economy (as predicted in November, here). As painful as it is, let’s take a closer look at some of the German „performance indicators“:

As already predicted, the German GDP shrank by -0.3% in 2023, as Destatis stated, here (cf. here for an FT-comment). And, as expected, it will not get any better in 2024 as the IW Köln explicitly forecasts a further recession for Germany in 2024, here (-0.5%) as well as  the IMK (here, -0.3%) and Deutsche Bank (here, -0.2%). There against, the famous Bundesbank remains bullish and foresees an annual growth in 2024 of 0.4% (here).

Undisturbed by this gloomy sencario, the DAX price index (for an explanation, why I prefer this index now, cf. here) at first continued its year-end-ralley, starting at 6,488 points on 1 December, plateaued on 11 December with 6,645 points before slightly decreasing to 6,628 points on 29 December 2023.

German industrial orders recovered a bit in November: after gaining +3.2% in August (MoM, however still -4.2 YoY) and  a mere 0.2% in September (MoM, still -4.3% YoY), orders declined by -3.7% in October (MoM, even -7.3% (!) YoY), orders slighty increased by +0.3% in November 2023 (MoM, but -4.4% YoY). There against, Germany’s industrial production  remains in recessionary territory: after -0.2% (MoM, even -2.0%) in August, another -1.4% in September (MoM, -3.7% YoY) and -0.4% in October (MoM, -3.5% YoY), production further declined by a further -0.7% (MoM, -4.8% YoY) in November 2023. Surprisingly, German exports showed a rather strong rebound:  after -1.2% (MoM, -5.8% YoY) in August, –2.4% in September (MoM, -7.5% YoY) and -0.2% in October (MoM, -8.1% YoY), exports increased by +3.5% (MoM, but still -5.0 YoY) in November 2023. For other German KPI’s, I refer you to the „Destatis Deutschland-Dashboard“ (here) and the „Data Commons (Germany)“ (here).

The German Target 2 balance rather strongly increased by roughly Euro 33bn in September 2023 and ended at Euro 1,093bn. The previous decline of the German inflation-rate finally stopped in December: 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, before re-climbing to 3.7% in December 2023 (each YoY).

There was indeed no „autumn boom“ in the German labor market: the unemployment rate – after 5.7% in September and 5.7% in October, unemployment slightly decreased to 5.6% in November before resuming 5.7% in December 2023. German insolvency filings increased for the eigth 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, 18,8% in November, they increaesed by another 12.3% in December 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 0.7 points and stood at 43.3 points on 2 January 2023. Also, the ZEW Indicator (for the current situation) gained 2.7 points and was at -77.1 points in December. The ifo Business Climate Index, though, lost some 0.9 points and ended at 86.4 points in December 2023.

To sum up: Although German exports had a blast and two out of three sentiment indices re-gained some ground in December, this does not make-up for otherwise rather harsh kpi’s – the news about a recessionary 2023 being rather the tip of the iceberg than the bottom for a solid re-ignition of the German economy. Already now the basically optimistic pundits paint a bleak picture for 2024, too. Even the 0.4%-growth predicted by the Bundesbank would not really instill hope, the other predictions are even more frustrating. Due to several governmental measures which led to an increase in prices with the start of 2024, inflation will likely further pick-up again, at least in January and February. Although the rise in employment (and companies) in the German industry sector in 2023 (here) cannot really be explained, it seems rather far-fetched to hope for a continuation of this trend in 2024, given that probably not only the German OEMs will fail to ignite a re-bound (cf. here, in German).  Even the ever-optimistic Handelsblatt thus predicts a rise in corporate insolvencies by 30% in 2024 (here, in German). Additionally, the major job-cuts already announced now will most probably, lead to a not unsignificant increase in unemployment (cf. here). Recession, high(er) inflation, rising insolvencies and an increase of unemployment figures – if indeed realising – will probably (hopefully?) put an end to the illusion of German prosperity as narrated in the 2010s.

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