The German Economy in August 2017 – mixed signals

Like the weather, which at least in Germany sent some mixed messages about “summer”, the German economy currently sends mixed signals as to its status:

For the third month in a row, the German DAX continued its downturn, closing at a four-months low: After closing at 12,251 points on 1 August, the index closed at 12,055 points on 31 August 2017 – thus losing another 196 points (compared to 207 points the previous month) in the course of the month. Hence, we saw the “triple” or “hattrick” warned before in my previous monthly; probably this and / or next month will show whether this was just a softening during holiday-season or the start of a market-correction. Obviously, this will mostly depend on central-bank policies – which are hard to discern these days…

After a strong rebound from its May lows, German exports in June 2017 (latest available figures) declined by 2.8% or from Euro 110bn in May to Euro 107.2bn in June 2017, However, taking a closer look at the hefty rise of over 14% on a YoY-basis in May, I would take these figures with a pinch of salt: The strong amplitude might be due to statistical particularities rather than real changes (cf. also a similar development in insolvency figures, below). The German Target-2-balances for July 2017 declined by some Euro 3.5bn from the previous Euro 860bn in June to 856.5bn in July 2017 (cf. here). Since the current growth of German GDP is mainly fueled by retail and consumption, the German retail sector prospered in the last months (cf. here) – thereby compensating for the decrease in exports (and diminishing the export-surplus!).

Again, as in July, due to the summer season, the German unemployment-rate slightly increased from 5.6% in July to 5.7% in August 2017, the number of unemployed rising by 27,000 to 2.545m (MoM) but shrinking by another 139,000 (!) on a YoY-basis. However, even the German media notices that the quality of the jobs created is not the same as of the jobs lost (Tagesspiegel I, Tagesspiegel II, FAZ). So, there are indications for a certain “americanization” of the German economy where it is already lamented since several years that the neither productivity nor wages were able to reach pre-crisis levels (cf. here). Not a good sign….

After already increasing in July, German inflation (as well as the inflation in the Euro-zone) further increased from 1.7% in July to 1.8% in August 2017 (MoM) – again driven by higher food and energy prices. And you do not need to be a prophet to predict that the inflation will further rise – after Harvey energy prices are set to rise as well as prices for food – given the current dismal haresting data. Also, Germany (as well as Poland and Austria) was hit by a severe storm on 18 August 2017; many acres of forrests were destroyed (cf. for further details here); this currently lets prices for wood fall into the abyss, but it is also clear that the price will skyrocket in one or two years, thereby also influencing the inflation rate.

After decreasing by an unbelievable 16.7% in April, corporate insolvencies in Germany ticked-up by 1.6% in May 2017 (YoY-basis). While this could indeed be a sign for a turning-point (insolvency figures have been on a constant downward trajectory since 2010, I would, similar to the export figures as stated above, be cautious about the trajectory: Again, I would rather attribute this increase to statistical anomalies than to see it as a new trend – for the time being.

Besides the decline in exports, also another indicator went south: Industrial production in Germany decreased by 1.1% in June 2017 (MoM; in accordance with the then weaker PMI, cf. below). However, since new orders increased by 1.0% in June (MoM), it seems probable that industrial production will again rise in the coming months. Supporting this assumption is the German (Industrial) Purchasing Managers’ Index (PMI) which increased from 58.1 points in July to 59.3 points in August 2017. There against, the Ifo business climate index slightly decreased from 116.0 points in July to 115.9 points in August 2017. The ZEW Indicator gained 0.3 points from 86.4 points in July to 86.7 points in August 2017.

Overall it seems that, after record-breaking months from May to July, that the German economy took a summer-break in August. We will see whether September 2017 will again see new records or – against the backdrop of the Korea-crisis – whether there will be more / growing signs of a downturn.

Leave a Comment