… seems to be an appropriate title for this month monthly: Given the last minute’s escape from a “technical recession”, combined with the latest data, last month’s asssessment that a plateau to the recession might be nigh (cf. here), is actually supported. However, some crucial facts and my gut-feeling (sorry, this is not really scientific, I know) point in another direction. But, hey, let’s look into the German economy in some more detail:
“Be careful with what you choose,
you may get it”
The deadline for the legislator to implement the EU “Restructuring Directive” is 17 July 2021 (see for further background information to the Directive here (in German)). However, The Ministry of Justice will most probably not publish the (German) draft bill originally expected for the end of this year, which should also take into account the consequences of the ESUG evaluation (see here for more details (in German)), until the spring of next year. Meanwhile, however, various associations have been very active and have, in some cases, developed concrete proposals as to how they believe the implementation into German law should take place. A look outside the box shows that the Dutch, for example, are already much further along in implementing the directive – and are likely to set completely different priorities than the German position papers suggest.
Although some indices have improved since August (cf. my earlier report, here), the overall picture of the German economy is still grim. Is this the highly awaited plateau or rather a short breathing-space due to the annual “autumn recovery”? Before trying to answer this question, let’s look into the German economy in more detail:
Implementing the corresponding agreements in the coalition agreement (see already here), the Ministry of Justice (“BMJ“), after a number of disputes (cf. here for more details (in German)), has now submitted the expected draft bill (“Ref-E“) of the “Act to Combat Corporate Crime” (“Gesetz zur Bekämpfung der Unternehmenskriminalität”) on 22 August 2019, the core of which is the “Association Sanctions Act” (“Verbandssanktionengesetz” or “VerSanG“). The draft is now to go through the usual coordination processes in the various inter-governmental departments before it is published. However, the draft is already circulating in various committees, so that specialist media at least feel obliged to comment on it (see only here at “Juve” (in German)), whereby critical voices far outweigh positive ones. In the following, the first findings shall therefore be summarized:
As a blogger-colleague colourfully pointed out recently, if people in the locker-room of a swimming pool start to talk about “recession” and “inverted yield curve”, the recession “is mainstream”. Accordingly, even German forecasting instutions, rather (in)famous for not spotting recessions correctly, are at least now considering an – albeit short – recession for Germany (namely, the “Institut für Weltwirtschaft” (IfW), cf. here). Hence, the question is not, if and when the crisis will hit the German economy (as asked last month, here), but how hard and how long the impact will be and last. And this is a rather difficult question. But, let’s look into it in some more detail:
Returning from the summer holidays, the German economy does not look any better than in the previous month (here). The German GDP showing a (mild) contraction in the second quarter (cf. below), proves right the gloomy outlook of this post since September of last year (here). But, let’s look into it in some more detail:
Seemingly, the worsening economic situation (see only here) is already leading to poorer payment morale. For an entrepreneur, however, it helps little to complain about the general “moral decline” (as is done here (in German)). Rather, you should proactively take action well before a possible default in order not to fall victim to the (very German) motto “in court and on the high seas one is in God’s hands” or even to become a candidate for one of the notorious “domino insolvencies” yourself if a large customer falls into insolvency. Over the past twelve months, I indeed noticed an increase of requests to consult on how to react to outstanding payments – right up to being instructed to plan and implement a complete receivables management system. Enough reason to sum-up all the bits and pieces in one post.
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:
While the public hype about “start-ups”, i.e. (more or less) innovative business start-ups that pursue aggressive growth strategies, is unbroken, a current PwC study shows that in recent years numerous so-called “fintechs” (i.e. start-ups that (at least allegedly) want to introduce disruptive business processes into the financial world through digitalisation) have already run out of steam (here). However, the awakening after bankruptcy can, though accompanied by less public fanfare than the start, sometimes be very bitter for the former founders. Namely, when it comes to personal liability. In this context it is worthwhile noticing that the German Federal Supreme Court (“Bundesgerichshof”, “BGH”) in a decision of 2007, which still dealt with the consequences of the so-called “New Economy” imploding at the beginning of this century, explicitly raised the duties for managing directors of start-ups in the crisis. Against this background, the following brief might help to avoid a rude awakening.