The German economy in April 2018 – plateau

Again, after a bag of mixed signals in March, I do not really know what to make of the April 2018 data:

After the the (further) decline in March, the DAX gained considerably in April: Having closed at 12,096 on 29 March, the index gained more than 500 points in the course of the month and closed at 12,612 points on 30 April 2018. So, the downward-trend of the last months has at least been interrupted – and until now it seems that the DAX will make another winning streak in May.

Although curent data on the development of Germany’s GDP in the first quarter of 2018 is still not available (it will be this week….), there are further indications that the German economy looses steam: German exports, after declining by –3.2% in February (MoM) and -0.4% (MoM) in January, increased by 1.7% (MoM) in March 2018, but decreased by 1.8% compared to the same month in 2017. Meanwhile, the German Target 2 balance decreased by over Euro 20bn and now stands at Euro 902 Billion – which might also be read as a sign of decreasing exports.

No new data is currently available after Germany’s industrial production took a surprising hit with a minus of 1.6% in February 2018 (MoM). However, industrial orders declined by another 0.9% in March 2018 – which will probably not bode well with the production figures. After declining by another -3.4% in January, corporate insolvencies increased by 2.8% in February 2018 (each YoY).

But – no surprise here – the German unemployment-rate fell further from 5.5% in March to 5.3% in April 2018, the number of unemployed falling by around 74,000 (MoM) and 185.000 (YoY) now reaching 2.384m. In sync with the declining jobless figures, the number of employed people reaches new hights: altough the number of employed slightly declined by about 0.7% to 44.3m in the first quarter 2018, compared to Q4/2017, it increased by more than 600,000 in a YoY-comparison. The downside: the number of self-employed is decreasing. Overall, the German economy comes as close to full employment as it ever was after the reunification.

The German inflation-rate, after steadily increasing from 1.3% in January to 1.6% in March, the rate stagnated at 1.6% in April 2018 (each MoM).

Already reflecting the mixed signals stated above, the leading German sentiment indicators further point to a weakening economy: The German (Industrial) Purchasing Managers’ Index (PMI) – (slightly) further declined from 58.2 points in March to 58.1% in April 2018. The Ifo business climate index (after a remodeling of the mathematical model) fell from 103.3 points (114,7 points according to the old method of calculation) in March to 102.1 points in April 2018. Also, the ZEW Indicator further declined from 90.7 points in March to 87.9% in April 2018.

Also, some other mixed Signals as to the future developments in Germany: Whereas the leading German forecast institutes (“fünf Wirtschaftsweise“) see a lasting boom well into 2019 (cf. here), two other indicators, the IMK-indicator (here) and the “NowCast-Indicator” (here) foresee a recession for the German economy in the foreseeable future (wortwitz…), i.e. already this year. I have to admit that I have never heard of the last two indices before, bute that might be my economic ignorance……

Looking at the assembled data, it seems that the German economy has reached a plateau-phase with future indices, like sentiment indicators, clearly pointing at a bumpy road forward – if not to a recession – while other (lagging) indicators, like stock indices or employment, point to a still healthy economy. My uneducated guess is that the DAX will remain strong until end of May and then weaken in June (“sell in May and go away”) and that we will have a similar – mixed – picture for the months to come. The decisive months will then probably be September and October, especially considering the decision of the US Fed to “raise or not to raise” interest rates further.

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