The German economy in April 2021 – cautious optimism warranted

To me, the March ’21 figures implied that – given the then stark rising corona-figures – the German economy was rather “walking on egg-shells” fearing another crash due to the ongoing and soon to be hardened lockdown (cf. here). However, there were signs of hope. Now let’s take a more detailed view into the German economy for April 2021 to see if this hope was indeed warranted:

Last months’ estimates from the “five wise (wo)men” (Wirtschaftsweise) about the German GDP‘s growth of 3.1% (here) and the German government’s even more optimistic view of 3.5% for 2021 (here, in German) is somewhat contrasted with a German economy having actually contracted by -1.8% in the first quarter of 2021 (here).

The German DAX, after setting a new record with 15,459 points on 16 April, lost considerably an ended the month barely budging above the 15,107 points it started on 1 April, namely at 15,135 points on 30 April 2021.

German industrial orders – after the December ’20 setback with -1.9% (MoM), an increase of just 0.8% (MoM, no YoY-data!?!) in January, another notch upward with +1.3% (MoM) in February, the upward curve seems to be steading with another +1.5% (MoM) in March 2021. Also, Germany’s industrial production, after taking several (pandemic-induced) hits with substantial decreases in output of -2.5% (MoM, -3.9% YoY) in January and -1.6% (MoM, -6.4% YoY) in February, took a turn to the positive with an increase of +2.5% (MoM, even +5.1% YoY) in March 2021. Furthermore, German exports steadied its moderate growth and, after +1.4% (MoM, -8.0% YoY) in January, +0.9% (MoM; -1.2% YoY) in February, reached +1.2% (MoM, and even +16.1% YoY!) in March 2021. 

The German Target 2 balance shed some Euro 57bn from its Euro 1,081bn in a month and ended at at 1,024bn at the end of April 2021. The rise of the German inflation-rate also steadies – from a negative -0.3%, in December 2020 and a respectable 1.0% in January over a more than modest 1.3% in February to 1.7% in March and now to 2.0% in April 2021 (each MoM; and the Bundesbank foresees an inflation rate of up to 4.0% until the end of the year 2021, cf. here (in German), outright scary). 

Despite the ongoing corona-related restrictions, German labor market, took the usual spring-uplift and, after 6.3% of the workforce unemployed in February and 6.2% in March 2021, shed some 77,000 unemployed from its statistics (MoM), so that the number of unemployed fell to 2.771m or 6.0% of the overall workforce. The number of (applications for the commencement of) corporate insolvencies in Germany, after a decrease of -31.1% (YoY) in January, declined by another 21.8% (YoY) in February 2021.

The leading German sentiment indicators, are still rather inconsequential on the consequences of the lockdown 3.0: While this month the German (Industrial) Purchasing Managers’ Index (PMI), only loset a moderate 0.4 points and ended at 66.2 points on 3 May 2021, the ZEW Indicator (for the current situation), after remaining rather unchanged from -67.1 points in February to -67.2% in March, now gained 6.2% and ended at -61.0% in April 2021. The Ifo business climate index continued its rise from 91.1 points in January to 92.4 points in February to 96.6 points in March to now 96.8 points in April 2021.

To sum up: The hope of last month was indeed warranted – the German economy seems to be on the verge of a fulminant breakout in the months to come. All the more since the third wave of the corona pandemic is broken since the beginning of May. The short-term rebound of the German economy seems to be a given. But… there are some obstacles, like shortages in important precursors and raw materials, which might slow down the recovery (for more of this pessemistic view, cf. here (in German)). We will see…

Leave a Comment