The German economy in December 2016 – mixed end to a disturbing year

After a rollercoaster rarely seen in recent history, the year ends relatively patchy for the German economy:

Following stock exchanges around the world, the DAX reached new hights, though not a new record: While it ended November with 10,640 points, it gained more than 800 points until December, 30th and reached 11,481 points to the year end. This means a gain of more than a 1,000 points or nearly 7% over the whole year. Who would have thought that, especially after the crash in February – being bearish surely did not make for a healthy profit this year.

And all this despite a further plunging trade-activity of the German economy: German exports in October 2016 rose by 0.5% (MoM; and imports by 1.3% (also MoM)). However, this rise only made up part of the losses incurred in November where exports had dropped by by 0.7%. Furthermore, on a YoY-comparison, exports dropped by 4.1% (!) and imports dropped by 2.2%. These figures do not really point to a growing economy as predicted by several experts for the fourth quarter.

Also, the German inflation-rate in December more than doubled (MoM) from 0.8% in November to 1.7% in December 2016. As stated multiple times elsewhere, the rise of inflationary rates will – if sustained – be the trigger for rising interest rates.

German unemployment-rate, though, hit another record-low, although the MoM figure rose from 5.7% in November by 36,000 to 5.8% in December 2016. This represents a further reduction of 113,000 on a YoY basis. The unemployment rate for 2016 thus reached its lowest point since 1991 with an annual average rate of 2.691m or 6.1%.

In a somewhat stark contrast to the German foreign trading indicators, the German (Industrial) Purchasing Managers’ Index (PMI) unexpectedly rose from 54.3 points in November to 55.5 points in December 2016, implying a strong future growth of the German economy. Also, the Ifo business climate index reached a new high: 111.0 points after 110.4 in November 2016. German managers therefore seem to be more optimistic than the overall German population as the Spiegel points out. The ZEW Indicator for the current economic sentiment also rose from 58.8 in November to 63.5points in December 2016, the outlook remaining unchanged.

Kaiser’s Tengelmann will now definitely be split between its competitors EDEKA and REWE. Meanwhile, the situation is rapidly changing for Air Berlin: first, it was announced that a Lufthansa manager would take the helm at the crisis-striken airline. Secondly, it was announced that Lufhansa would take over Air Berlin’s long-distance flights. Finally, Deutsche Bank is now doing more than fine – its share price went up, again, sometimes over 18 Euro, ending the year with a 17.26 Euro price-tag. This development should be read in conjuncture with the rescue of Monte dei Paschi by the Italian state (my comment here), though.

Quite interesting to note in this context is (yet another) warning of a financial crisis – directly under the news that the Bundesbank is shipping German gold to Germany faster than anticipated. Certain experts warn that especially in the real estate-sector a crisis is imminent due to the credit-conditions in this sector. Seemingly, the German federal government is not really listening to these warnings – since it plans a re-faciliation of credits for “Häusle-Bauer” (persons building new homes) by lowering certain conditions which were only tightened in March of this year. Meanwhile, my buddies at the banks tell me that the interest-rate for mortgages has already risen by 0.1% to 0.4% since May 2016.

Looking at the foreing trade and inflation figures, the likelihood of a stagflationary scenario for the German economy does not seem to be too far fetched – and I wonder whether the GDP-growth will really surpass 0.3% in the fourth quarter.

At the end of this short report and at the beginning of the new year, I wish all my readers a Happy and Successful New Year 2017! Have a good start!

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