Well, „subdued“ – the term I used in my last issue (here) – was the correct description of Germany’s economy as it turns out now. But, hey, let’s look at the current stage in more detail and assess how it will develop:
Surprisingly, the German BIP seems to have grown in the first quarter 0f 2024 – if only slightly, namely by 0.2%, and mainly due to the remaining inflation (here, in German).
The German DAX price index (for an explanation, why I prefer this index, cf. here) took a correction from previous ATH’s, starting at 7,210 points on 2nd April, ending significantly LOWER at 7,017 points on 30th April 2024.
German industrial orders seem to oszilate around zero: after gaining +0.3% in November 2023 (MoM, -4.4% YoY) and even 8.9% (MoM, +2.7% YoY!) in December 2023, orders decreased by -11.3% (MoM; -6.0% YoY) in January, but increased by 0.2% (MoM, but still down by -10.6% YoY) in February and again decreased by another -0.4% (MoM, -5.8% YoY) in March 2024. The same seems to be true for Germany’s industrial production: after -0.7% (MoM, -4.8% YoY) in November and -1.6% (MoM, even -3.0% YoY) in December 2023, +1.0% (YoY, -5.5% YoY) in January, but +2.1% (MoM, but -4.9% YoY) in February, production decreased by -0,4% (MoM, even -3.3 YoY) in March 2024. There against, German exports gained some ground: after +3.5% (MoM, but still -5.0 YoY) in November, -4.6% (MoM, equally -4.6% YoY) in December 2023, +6.3% (MoM, +0.3% YoY) in January, but -2.0% (MoM, even -4.4% YoY) in February, exports increased by 0.9% (MoM, +1,2% YoY) in March 2024. 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 decreased by roughly another Euro 18bn in March 2024 and ended at Euro 1,047bn. The German inflation-rate continued its decline in January: 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, to 2,9% in January 2024, 2.5% in February and to 2.2% in March , where it remained (2.2%) in April 2024 (each YoY).
The German labor market „continues to lack an economic tailwind. The spring upturn therefore remains weak“ as the Bundesagentur für Arbeit aptly put it: the unemployment rate – after 6.1% in January and another 6.1% in February, unemployment decreased by -0.1% to 6.0% in March where it remains (6.0%) in April 2024 (all MoM). German insolvency filings increased for the 12th 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 and 12.3% in December 2023, 26.2% in January, 18.1% in February, 12.3% in March, filings increased by another 28.5% in April 2024 (all YoY; cf. my most recent comment, here, in German)!
The leading German sentiment indicators, are, for once and positively, in sync: The German (Industrial) Purchasing Managers’ Index (PMI) gained 0.6 points and stood at 42.5 points on 2nd May 2024. The ZEW Indicator (for the current situation) gained another 1.3 points and was at 79,2 points in April 2024. Also, the ifo Business Climate Index, gained another 1,5 points and ended at 89.4 points in April 2024.
To sum up: While the hard KPI’s rather oszilate around zero – gaining some in month, losing some in the other – the feeling (as the sentiment indicators so tell) seems to be one of „subdued optimism“. Currently, the German economy is „muddling through“, like the good-old Mrs. Merkel did and everything seems to be ok, although not fine. And indeed, the correction in the DAX was overdue and some experts aclaim that we have reached „peak insolvency“ with the last record-numbers of April.
Looking at this picture as a Cassandra, though, it gets slightly more pessimistic. Compared to the US (here), Germany’s potential for growth is miniscule (here) – so there is not much headroom to grow into – even under the best of circumstances. And the circumstances are not the best, e.g. although some sources claim that Germans would work their literal „ar*****“ off with over-hours (here, in German), the fact is that the Germans do not work too much (cf. here in German) – and not enough to really generate growth. And the discussion is about further reducing working time. Hence, already looking at mid-term developments, the German economy will not really „skyrocket“ even if there is potential. Now even this modest outlook might be „countered“ by a sober look at the current state of the finances not only of the US-Government (here, in German).
My (more or less educated) guess is that we will see a little upswing in the German economy in the 2nd and first half of the 3rd quarter – followed by another downturn, its speed and depth depending on how the geo-political, economic and financial situation develops until then. So, no, we are not out of the woods – we are only in a clearing in the midst of the Appalachians, so to say.