Going into the summer (holidays) the outlook for the German economy is not good – to put it neutral: As already sketched out in May (here), Germany’s economic data shows some severe cracks and it seems indeed that the (recessionary) train is now advancing fast. Let’s look into it in some more detail:
Although no figures for the second quarter are available yet, it is a fair guess that German GDP has not really grown between April an June 2019.
Despite (or because of?) the worsening fundamentals, the German DAX took an upward path over the whole month of June 2019: After closing at 11,726 points on 31 May, the index rose by 672 to 12,398 points on 28 June 2019 (here), thereby nearly equalizing the losses of May.
In a somewhat stark contrast to the previous months, German exports grew by 1.1% on a MoM-basis and even by 4.5% on a YoY-basis. Hence, after a long decline, there might be some hope left for the German growth locomotive – or is it still stockpiling, as discussed last month? The picture is not clear yet and the next months will show. The (corresponding) German Target 2 balance, again gained some Euro 8 Billion and rose from Euro 934 Billion in May to Euro 942 Billion in June 2019. The German inflation-rate, rose from 1.4% (YoY) in May to 1.6% (YoY) in June 2019.
The free-fall in Germany’s industrial production in the last months has decelerated, if only a little, when registering a small gain of 0.3% (MoM) but still a YoY-decline by -3.7% in May 2019. However, given the figures of previous months, the decline is still spectacular: December 2018: -0.4% (MoM) / -3.9% (YoY), January 2019: -0.8 (MoM) / -3.3 (YoY), February: +0.7 (MoM) / -0.4 (YoY), March: +0.5% (MoM) / -0.9% (YoY); April: -1.8% (YoY), -1.9% (MoM). However, it does not look too good for the coming months since German industrial orders took another hit in May, when declining by -2.2% (MoM) and even -8.6% (YoY)!
Despite the fact that the German unemployment-rate again decreased by another 20,000 (MoMO) to 2.216m (and further -60,000 YoY!), the unemployment rate stayed at 4.9% in June 2019. Hence, for the last three months, there were at least no meaningful downward trends. Accordingly not only the Bundesagentur für Arbeit warns that the economic cooling affects the labour market. Already there are the first news about mass lay-offs (Deutche Bank is a prominent example (here), however, there are also others, like Ford or Volkswagen (here) as well as – ten years after the financial crisis – the first discussions about short working hours (Kurzarbeit, here). Hence, it seems rather certain that unemployment has hit bottom now and will probably start to rise in the winter at the latest.
Despite all the gloomy outlook, German corporate insolvencies, only slowed down a bit their freefall of the previous months (-11.5% (!) in March (-3.2% for the first quarter (YoY)) but were still down by 3.2% (YoY) in April 2019. Also here, it seems likely that the trend will reverse within the next twelve months unless measures are put in place to strengthen the economy.
As in the previous month, the leading German sentiment indicators were not in sync in June: As already observed in the previous month, the German (Industrial) Purchasing Managers’ Index (PMI) increased from 44.3 points on 3 June to 45.0 points on 1 July 2019. There against, the assessment of the current economic situation, according to the ZEW Indicator, again darkened a bit: After 8.2 points in May, the index lost another 0.4% and now stands at 7.8%. Also, the Ifo business climate index, which declined in April to 99.1 points and then to 97.9 points in May, lost another 0.5% to 97.4% in June 2019.
To sum up: As in the previous months, the core figures of the export-oriented German economy are pointing south, with the notable exception of exports, which surprisingly grew in June. Also, unemployment and corporate insolvencies still stay at historical low levels for the time being. Hence, there is a fair chance that consumers save the economy also in the 2nd quarter. However, given that the global economic outlook rather deteriorates further, there is few hope that Germany can escape a recession for another extended period. Until then, enjoy the summertime!