The German economy in August 2022 – dire straits?

The war in Ukraine is progressing very nicely – for the Ukraine, for the Russians not so much (for regular updates, cf. here, in German). Despite (or because?) of this development, hope was already in short supply in the last month (cf. here). Now, with our Ukrainian brothers (and sisters) in arms recovering lost ground, we seem to be in dire straits. But hey, let’s take a closer look:

Even though Destatis was able to revise its own statement as to the growth of Germany’s GDP in the second quarter 2022 to +0.1%, the consensus of the pundits is that the only question remaining is WHEN the recession will hit Germany not IF. Such pundits predict a shrinking German economy beginning as early as the third quarter (here), and it is unlikely to stop there, either in terms of time (here, in German) or limited to Germany (here, in German).

The German DAX enjoyed yet another “crack-up-boom” in August, this however, not really lasting long time: Starting at 13,471 points on 1 August, the index inially gained 471 points to 13,928 points in mid-August, before losing an incredible 910 points and closing the month at 13,018 points.

German industrial orders rose in July: after -2.2% (MoM; +2.9% YoY) in February, 0.6% (MoM; and even 20.7% YoY) in March, -2.7% (MoM; -6.2% YoY) in April 2022, 0.1% (MoM; -3.1 YoY) in May, declining by -0.4% (MoM; and even -9.0% YoY!) in June, they increased by 0.7% (MoM, 12,6% YoY) in July 2022. Germany’s industrial production, continued its zig-zag-course: after declining by -3.9% (MoM; -3.5% YoY) in March, rising by 0.7% (MoM, but -2.2% YoY) in April, and gaining 0.2% (MoM, -1.5% YoY) in May and a meagre +0.4% (MoM, but -0.5% YoY) in June, now lost -0.3% (MoM, -1,1% YoY) in July 2022. There against, German exports,whose skyrocketing in the previous months (by +6.4% (MoM; and even +14.3%) in February, -3.3% (MoM, but +8.1% YoY) in March, +4.4% (MoM, and even +12.9% YoY) in April)) had had already taken a first hit, albeit only -0.5% (MoM, but +11.7% YoY) in May and had resumed its rise with +4.5% (MoM, and even +18.4% YoY) in June, took another hit with -2.1% (MoM, but still +14.3 YoY) in July 2022. 

The German Target 2 balance, rose by some Euro 97bn in the course of August 2022 and ended at Euro 1,245bn – which seems to be a record-high (here, in German). The German inflation-rate, reversed its downward trend of the previous months and again accelerated: starting from 1.0% in January (2021) to 1.3% in February, to 1.7% in March, to 2.0% in April, to 2.5% in May, to 2.3% in June, to 3.8% in July, to 3.9% in August, to 4.1% in September, to 4.5% in October, to 5.2% in November and to 5.3% in December 2021, 4.9% in January (2022), 5.1% in February, 7.3% in March, 7.4% in April, and, after 7.9% in May, decreasing to “only” 7.6% in May and even to 7.5% in June, it increased to 7,9% in August 2022 (each YoY; cf. my evaluation here, in German). Since producer prices increased by another nearly 46% after the publication of the August-inflation figures, we can safely assume that the relentless rise of the German inflation figures will continue unabated in September.

Still due to the registration of Ukrainian refugees, the German labor market, which according to the German Department of Labor principally still keeps its robustness, the unemployment rate – after 5.3% in February, 5.1% in March, 5.0% in April, 4.9% in May, 5.2% in June, 5.4% in July – grew by another +0.2% to 5,6% in August 2022. (Applications to commence) business insolvencies in Germany rose – after a stark rise by 27% in March, a near-equal stark decline by -20.8% in April 2022, another more modest rise by 8.4% in May, then another decline by -7.6% in June, followed by another -4.2% decline in July – by 6.6% in August 2022 (cf. my comment, here, in German).

The leading German sentiment indicators re-synced again in August: the German (Industrial) Purchasing Managers’ Index (PMI) decreased by a minimal 0.2 points and stood at 49.1 points on 1 September 2022. The ZEW Indicator (for the current situation) lost a rather major 18.2 points and decreased to -45.8 points in August 2022. The Ifo business climate index, too, cooled, but only miniscule, and fell to 88.5 points down from 88.7 points in July 2022. And this will not get better in the next month….

To sum up: The immediate future for the German economy rather smells like dire straits than teen spirit – to stay in the game of citing old song-titles. And all the “hard” KPI’s indeed do not really point to the recession already forecast by the pundits. The only hope is that the gas price, already falling since several weeks (here), does not only keep on falling, but that this decrease actually indicates that the shortage in gas is evaporating. Otherwise, the German economy will suffer more dire straits than it probably can sustain.

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