After observing that Germany’s „hard“ KPI were southbound in June, all eyes are now on the development in July. So, hey, let’s take a closer look how the German economy fared in July:
Unfortunately, though, July ended with a bang – on 30 July Destatis reported that – despite hopes to the contrary – the German GDP has shrunk by -0.1% in the second quarter of 2024 (after growing by 0.2% in the first quarter, here). Before the publication of the current figures, the Bundesbank, though, hoped for a slow but steady recovery due to a more positive consumer climate (here).
The German DAX price index (for an explanation, why I prefer this index, cf. here) took a correction from previous ATH’s, starting at 7026 points on 1st July, reaching 7,202 points on 12th July, before ending at 7,110 points on 31st July 2024.
Quite surprisingly, German industrial orders exceeded expectations considerably: after continually decreasing since March, first by -0.4% (MoM, -5.8% YoY) in March, by another -0.2% (MoM, still -1.6% YoY) in April and by another -1.6% (MoM, even -8.6% YoY) in May, orders increased by +3.9% (MoM, but still -11.8 YoY) in June 2024. The same goes for Germany’s industrial production: after decreasing by -0,4% (MoM, even -3.3 YoY) in March, -0.1% (MoM, -3.9% YoY) in April and even by –2.5% (MoM, -6.7% YoY) in May, production rose by +1.4% (MoM, but still -4.1% YoY) in June 2024. There against, German exports again declined: after decreasing -2.0% (MoM, even -4.4% YoY) in February, increasing by 0.9% (MoM, +1,2% YoY) in March and 1.6% (MoM, 1.9% YoY) in April, exports decreased by -3.6% (MoM, -1.6% YoY) in May 2024 and by another 3.4% (MoM, even 4.4% YoY) in June 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 Euro 42bn in July 2024 and ended at Euro 1,048bn. The German inflation-rate increased a notch: 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, re-decreasing to 2,9% in January 2024, 2.5% in February and to 2.2% in March , where it remained (2.2%) in April, increasing to 2.4% in May, before decreasing to 2.2% in June and now increasing to 2.3% in July 2024 (each YoY).
Largely unnoticed, German Labor market, also goes south, the unemployment rate, which stood at 5.8% in May, and again at 5.8% in June, rose to 6.0% in July 2024 (all MoM). German insolvency filings increased for the 15th time in a row and again in the two-digits: 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, 28.5% in April, 25.9% in May, a „mere“ 6.3% in June, overall filings jumped by 13.5% in July 2024 (all YoY; cf. my most recent comment, here, in German).
The leading German sentiment indicators, were, once more, in sync: The German (Industrial) Purchasing Managers’ Index (PMI) lost a further 0.3 points and stood at 43.2 points on 1st August 2024. The ZEW Indicator (for business expectations (I changed to this more appropriate figure)) lost some 5.7 points and was at 41.8 points in July 2024. The ifo Business Climate Index lost another 1.6 points and ended at 87.0 points in July 2024.
To sum up: The German GDP is not coming off the ground, not only short-term, it has not really grown for the last five years (here). Inflation has gone up, sligthly, though. However, given the current sometimes rather excessive pay-rises (German private bankers get 10.5% more, here, in German), I wonder whether inflation will really cool-down or whether we are on the verge of entering the feared „second-round-effect“. The unemployment rate is rising – one could argue that this is related to the summer holidays. However, the percentage of unemployed grew by 0.3% (here) and even 0.6% (here) compared to July 2023 and 2022, respectively. Also, especially corporate insolvencies are relentlessly on the rise. Finally, the sentiment indices go south in sync.
Taking into consideration that unemployment and insolvencies are lagging economic indicators, while sentiment indices are ahead of the actual economic development, the sole good news of rising orders and production, which are indeed „hard“ KPI, will have to stabilize in the next month in order to overcome the current trends and sentiments.