The German economy in December 2022 – not so bad after all!?!

The war in Ukraine was still raging, but even in Germany Corona became old news as 2022 drew to a close. Hence, the hope which came up in October already as to the fate of the German economy (here) stabilised in November (here) and got even better at the end of one of the most disturbing years I personally encountered in my not so short life-span. But, hey, let’s take a closer look on how the German economy fared in December 2022:

According to first assessment, the German economy grew by a respectable 1.9% in 2022 (here, in German). From this positive outcome the pundits derive that the German economy might dip into a (techical) recession during the first half of the year (here and here, in German) and the government forecasts now that the economy as a whole will grow by a mere 0.2% in 2023 (here, in German), but not shrink at least. However, at least the growth-engine of the German economy, real estate, does not look like it will fulfill its share for the growth of the economy (here, in German). Also, despite this outlook, Germany is currently one of the worst performing industrialised nations worldwide (here, in German). Hence, a “not so bad looking economy” does not mean that it’s a healthy economy.

While over the last months I freely labelled the strong growth of the German DAXas a “crack-up-boom”, the stock-pickers seemingly had a better feeling than I did and were already anticipating a not so hard landing of the German economy: Although the index took a break during December, starting at 14,543 points on 1st December and closing the month at 14,005 points on 30th December 2022, hence losing 538 points in the course of the month, it is well known that the index broke the 15,000 line in January.

German industrial orders, too, seem to have taken a Christmas break: after -0.9% (MoM, but +6.9% YoY) in September and 0.8% (MoM, but -3.2% YoY) in October, they decreased by -5.3% (MoM, even 11.0% YoY!) in Novmber 2022. There against, Germany’s industrial production, encountered a small growth in the same month: after +0.6% (MoM, +2.6% YoY) in September, -0.1% (MoM, and stalled (0.0%) YOY) in October, production grew by 0.2% (MoM, but -0,4% YoY) in November 2022. Also, German exports, continued their downward trend, after -0.5% (MoM, but incredible +20.3% YoY) in September, -0.6% (MoM, but +14.2% YoY) in October, they shrank by a further -0.3% (MoM, but +13.3% YoY) in November 2022. 

The German Target 2 balance, gained another some Euro 35bn in the course of December 2022 and ended at Euro 1,269bn. The German inflation-rate, decreased further and “lost” itstwo-digit status: 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, increasing to 7,9% in August, to 10.0% in September and even 10.4% in October, the rate decreased to 10.0% in November and further to 8.6% in December 2022 (each YoY; cf. my most recent evaluation here, in German). It indeed seems that Germany crossed the rubicon in October 2022 – at least concerning peak-inflation. So, let’s keep our fingers crossed.

Although unemployment rose by another 20K, the German labor market remains robust, as the German Department of Labor reports; the unemployment rate – after 5.4% in September, 5.3% in October and 5.3% in November – rose to 5.4% in December 2022. And, finally, the tides seem to be turning for good in relation to (applications to commence) insolvencies in Germany: After already deviating from their normal well-known statistical zig-zag-pattern, the filings rose for the third month in a row:after a crash by -20.6% in September, a “rebound” by 18.4% in October, a modest rise by +1.2% in November, the number of filings increased by another 3.1% in December 2022 (cf. my most recent comment, here, in German).

The leading German sentiment indicators remained in sync for January 2023: the German (Industrial) Purchasing Managers’ Index (PMI) gained 0.9 points and stood at 47.1 points on 1 January 2023. The ZEW Indicator (for the current situation) gained another 2.8 points and rose to -58.6 points in January 2023. The ifo Business Climate Index, too, rose for the third consecutive time to 90.2 points, up from 88.6 points in December and 86.4 points (seasonally adjusted) in January 2023.

To sum up: Although the hard facts (of industrial orders, production and exports) point to a downward direction, the sentiment is definitely lighting-up for the German economy. This is probably also due to the statment of the head of the Bundesnetzagentur, Mueller, in which he assess that Germany will not incur a gas-shortage in this winter any more (here, in German). The relief in this sector will obviously translate into a falling inflation rate which will then allow for more discretionary spending by consumers. And the various state-aid programs – which only now start to come into play – will most probably also take some pressure from the economy. Hence, the positive sentiment seems to be justified – short term. Germany is far from being out of the woods – mid- and long-term. The bad ranking among its industry peers speaks volumes about the actual German state of the nation. Still, it isn’t as doomy as I predicted. That’s a real relief. So, let’s enjoy a brief respite from the last stressful three years and then let’s start to rebuild.

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