The small ray of light, posted in my Monthly of last month (here) seem to get stronger (by the month). But, hey, let’s look into the German economy in some more detail:
Actually, the DAX went nowhere in December: After again rallying early in the month (up to 13,407 points) it fell again, so thatafter closing at 13,236 points on 29 November, it only gained a mere 13 points and ended at 13,249 on 30 December 2019 (here). This rather somber ending of the year, though, should not conceal the fact that over the course of the year the DAX gained an incredible 25% (!) (cf. here).
The winning streak of the last months for German exports, however, did not last in November 2019: after gaining 1.5% (MoM) / 4.6% (YoY) in September and 1.2% (MoM) / 1.9% (YoY) in October, German exports turned sour again and lost -2.3% (MoM) and 2.9% (YoY) in November 2019. Hence, no trend reversal to be seen here. Furthermore, the German Target 2 (after already adding around Euro 33 (!) Billion in November) put on another Euro 25 Billion and stopped at Euro 895 Billion in the end of December 2019. The German inflation-rate remained unchanged and subdued at 1.1% in December 2019.
Unfortunately, German industrial orders, after already declining by -0.4% (MoM) / -5.5% (YoY) in October, definitely resumed its downward journey of the previous months with a decline of -1.3% (MoM) and even of -6.5% (YoY) in November 2019. The mechanical engineering sector was especially hit hard, with a decline of new orders by -15% (!). There against, Germany’s industrial production, after decreasing for two months in a row (-1.7% (MoM) / -5.3% (YoY) in October; -0.6% (MoM) / -4.3% (YoY) in September) gained 1.1% (MoM), but lost -2.6% (YoY) in November 2019.
German unemployment-rate increased by 46,000 (MoM), and even by 18,000 year-over-year to now 2.27m unemployed, the unemployment rate rising sligthly to 4.9% in December 2019. Given the rather sober figures in exports, orders and productio, the job market seems still to be robust. However, this is the first year since 2013 where more unemployed were registered than in the previous year (good comment here (in German)). A warning sign?
However, another classic warning sign of the previous months, German corporate insolvencies, rebound with a vengeance: after rising for three months in a row (0.2% in July, 0.6% in August & 1.1% (all YoY) in September), they fell by an incredible 6.0% in October 2019.
The leading German sentiment indicators, are currently not in sync, however, two of them now point strongly to an end of the recessionary trends: the German (Industrial) Purchasing Managers’ Index (PMI) slightly declined from 44.1 on 2nd December 2019 to 43.7 on 2nd January 2020. The ZEW Indicator (for the current situation), gained another 4.8 points and rose from –24.7 points in November to -19.9 points in December 2019 (while the outlook again dramatically improved!). Also, the Ifo business climate index further improved from 95.0 points in November to 96.3 points in December 2019.
To sum up: Some procedure as last month, where I wrote: “While some early indicators, such as the sentiment indicators and exports point to a positive reversal of the recessionary trends of the last months / year, production and new orders remain stuck in a downward trend.” With the exception of “production”, this statement remains true to the day. Hence, I would assume we are currently in some sort of plateau-phase. Even the uptick of the unemployment rate – which is a lagging indicator – might be due to the downward trends in the preceding months and, hence, not last. Hence, there is a good chance for an even more improved outlook at the end of January, although also my last sentence of last month’s “Monthly” still stands: “Due to the ongoing restructuring of the whole of the German automotive industry, however, the German economy will most probably remain on a fragile ground.” So, let’s wait and see….