Although quite a formidable phalanx of pundits indeed see the German economy „coming out of the woods yet“ (cf. my last monthly, here), not only the mood but also the current figures are not really champion-like. But, hey, let’s dive deeper into the facts:
The first forecasters come out of the woods yet and predict that the German GDP will rise by +0.3% in 2024 (here). This is somewhat contrasted by a rather negative outlook in EY’s banking barometer (here): „47 per cent of financial institutions expect the economic situation to deteriorate this year, with nine per cent even expecting a sharp deterioration. Only 30 per cent currently anticipate an improvement in the coming 12 months. In none of the previous EY surveys was the proportion of those expecting a sharp deterioration as high as it is now.„
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.
The German DAX price index (for an explanation, why I prefer this index, cf. here) corrrected it correction of the previous month and, starting at 7,002 points on 2nd May, it ended considerably higher at 7,109 points on 30th May 2024.
German industrial orders do not really seem to get better: after decreasing by -11.3% (MoM; -6.0% YoY) in January, they increased by 0.2% (MoM, but still down by -10.6% YoY) in February, but again decreased by -0.4% (MoM, -5.8% YoY) in March and now again by another -0.2% (MoM, still -1.6% YoY) in April 2024. Therefore quite unsurprisingly, the stock of orders has been declining for four months in a row (here and here).
The same seems to be true for Germany’s industrial production: after +1.0% (YoY, -5.5% YoY) in January and +2.1% (MoM, but -4.9% YoY) in February, production decreased by -0,4% (MoM, even -3.3 YoY) in March and -0.1% (MoM, -3.9% YoY) in April 2024. There against, German exports gained further ground: after +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 and by a further 1.6% (MoM, +1.9% YoY) in April 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 increased by roughly Euro 14bn in March 2024 and ended at Euro 1,06bn. The German inflation-rate is on the rise again: starting from its peak of 10.4% in October 2022, the rate first 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, but now re-accelerating to 2.4% in May 2024 (each YoY).
According to the Bundesagentur für Arbeit „The spring recovery has not really got going this year.“ Accordingly, within the German Labor market, the unemployment rate only fell so far: after 6.1% in January and another 6.1% in February, unemployment decreased by -0.1% to 6.0% in March where it remained (6.0%) in April, before now falling by another 0.2% to 5.8% in May 2024 (all MoM). German insolvency filings increased for the 13th 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, 28.5% in April, filings increased by another 25.9% in May 2024 (all YoY; cf. my most recent comment, here, in German)!
The leading German sentiment indicators, are, again, not really in sync: The German (Industrial) Purchasing Managers’ Index (PMI) gained 2.9 (!) points and stood at 45.4 points on 2nd May 2024. The ZEW Indicator (for the current situation) gained another 6.9 points and was at 72.3 points in May 2024. Only the ifo Business Climate Index, rather remained unchanged and ended at 89.3 points in May 2024.
To sum up: Sentiment is getting better, at least exports are beginning to thrive and there seems to be silver lining on the horizon now with a – though moderate – growth this year. But still these moderate hopes are at risk near and mid-term:
Inflation is already (slightly) up again. When you take into consideration that real wages currently gain at a pace of 12% per quintile and that the ECB (moderately) cut its interest rate lately (here), you do not have to have a well-developed predictive ability to forecast that inflation will be on the rise for the rest of the year. The race between higher wages to beat inflation and rising inflation reflecting rising costs (due to rising wages, the feared „second-round-effect“ will thus continue throughout the year – and with it endanger the currently developing growth story.
Also, Germany falls further behind in competiteveness – according to the IMD WCC, it fell from the 22nd to the 24th rank in the course of one year – after being 6th just before winning the Football World Championship ten years ago (comments here and here). And there are no signs that Germany will do better in the next years re-run. It is, hence, also fairly easy to predict that this mediocre ranking will have influence on foreign money flowing into Germany (the amount of which is already decreasing (here, in German).
Already under these circumstances the current pundit’s outlook of a 0.3% growth seems optimistic – though not unrealistic. However, also this moderate growth depends on other risks not materialising and it is lightyears away from the 2014 growth of 1.5% – the year German soccer ruled the world. So, let’s hope that German soccer will at least rule Europe this year.