The German economy in April 2020 – and the waves roll in…

As foreseen last, month, the Corona-Pandemic has inded cut into the German economy like a hot knife through an ice-cake – and it does not look good. But hey, let’s look into the German economy in some more detail:

And again, the “economic wise (wo-)men” (“Wirtschaftsweise”), counselors to the German Government regarding the economic development, were not pessimistic enough: While they expectes a decline of -1.9% for the German GDP in the first quarter of 2020 (here), the actual figures show a decline of -2.2% for the first quarter (here).

Starting at the low point of 9,544 points 1st April 2020, the DAX – in stark contrast to the rest of the economy – rallied by roughly 1,500 points until 29 April, when it reached its top with 11,107 points, ending the month at 10,861 (here). Obviously, this rally was fuelled by an unprecetended intervention of the central banks and it remains to be seen whether the DAX can keep this level.

While, really astonishingly given the lockdown, German exports, in February still grew by 1.3% (MoM) and by 0.4% (YoY), the figures finally caught up with the virus: In April 2020, exports crashed by -11.8% (MoM!) and still 7.9% YoY. In accordance with that crash, the German Target 2, after having jumped by Euro 114 Billion (!) from Euro 821 Billion to Euro 935 Billion in March, declined by Euro 18 Billion to roughly Euro 919 Billion. Also, the German inflation-rate further sunk to 0.9% in April 2020 (after 1.4% in March and 1.7% in February (all YoY)), a level not seen since 2016 (cf. here, in German). As already noted in the previous month, where – in a somewhat stark contrast to the overall decline, prices for food increased by 9% (YoY) in March (cf. here), this increase in food prices seems to accelerate now (here, in German).

Also, German industry really got hit by corona in April: after already declining by -1.4% (MoM) in February 2020 in February, German industrial orders crashed by 15.6% (!) (MoM) and even 16.0% (YoY) in March 2020. Also, Germany’s industrial production was thrown under the bus and crashed by 9.2%(MoM) and even 11.6% (YoY) in March 2020.

Finally, the German labor market has been hit by corona, the German unemployment-rate increasing by 308,000 unemployed in April 2020 to now 2.644m unemployed, the unemployment rate increasing by 0.7% to 5.8%. And, even this strong increase is softenened by the German “Kurzarbeitergeld” which has strongly increased according to the German Bundesagentur für Arbeit: “In March and up to 26 April 2020, 751,000 advertisements were registered with the employment agencies for a total of up to 10.1 million people. This does not mean, however, that these people will all end up working short time. Nevertheless, this is an unprecedented number compared to the last decades and even exceeds the number of advertisements during the Great Recession 2008/2009 many times over. In the entire “crisis year” 2009, the employment agencies received advertisements for 3.3 million people. German corporate insolvencies, after already falling by a stagering -5.4% in January further fell in February 2020 by another -3.2% and are foreseen to even fall further (cf. here, in German) after the suspension of the “early filing requirement” (cf. for further details here).

The leading German sentiment indicators, after having already indicated the afore-described economic crash, indicate an even deeper dive: the German (Industrial) Purchasing Managers’ Index (PMI) lost a staggering 10.9 points from 1 April’s to 45.4 points to 34.5 points on 4 May 2020, the ZEW Indicator (for the current situation) lost an incredible 48.4 points and fell off the cliff from -43.1 points in March to -91.5 points in April 2020. Also, the Ifo business climate index, fell from 87.7 points in March “to historic lows” of 74.3 points in April 2020. According to the Ifo-insitute: “This is the lowest value ever recorded, and never before has the index fallen so drastically. This is primarily due to the massive deterioration in the current situation. Companies have never been so pessimistic about the coming months. The coronavirus crisis is striking the German economy with full fury.”

To sum up: Now, finally, all indices (except the one for insolvencies (!) are in sync – yet not for comforting reasons. Hence, the forewarning of the previous months was not in vain – but the crash is still in its early stages and unfolding. The holistic look at the German economic environment reveals a rather dystopian future – at least for 2020. The 2nd quarter – which will carry the brunt of the economic consequences – might see the steepest recession in the German history since WWII or even the dark days of Weimar. My guess is a decline of -10% or more in the second quarter. Let’s look for a silver lining in the next month.

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