The German economy in February 2019 – disappointing early indicators

In February 2019, the German economy – if not paralysed (as in the last month, cf. here) – presented disappointing early indicators such as orders and production while other (rather lagging) indicators such as unemployment or corporate insolvencies still show record-low-levels. Let’s look at the development in more detail: 

Destatis confirmed in a later press release again that the German GDP grew zero per cent in the last quarter of 2018 (here).

according to a press release of Destatis (here). As already commented on the (unexpected) decline in the third quarter (cf. here), I think that German “experts” and politicians cling to a “growth-story” which is no longer existing and try to explain a general downward trend with singular events. We’ll see if this blissful ignorance continues…

Despite this abysmal data (but probably due to the PBOC flooding the market with liquidity, cf. below), the German DAX, after already recovering by almost 600 points in January, continued its wining streak through February: starting at 11,180 points on 1 February, the index ended another 335 points higher with 11,515 points on 28 February 2019 (here).

In January 2019, German exports gained another 1.7% (YoY) thus adding another volatility streak to the previous months (December: -4.5%, November: 0.0%, October: +8.5%, September -1.2%, August: +2.2%, July: +7.6% (all YoY)). Hence, it is still not possible to discern a trend, but given the following rather gloomy data on orders and production it is hardly conceivable, that exports will keep rising in the coming months. The (corresponding) German Target 2 balance, lost an incredible Euro 96bn (!) and fell from Euro 968bn to Euro 872 Billion on 28 February 2019. The German inflation-rate, after falling into negative territory with -0.8% (YoY) in January 2019, rose to 1.6% (YoY) in January 2019, largely due to the climbing energy prices.

Being already on a losing streak in the previous month (December 2018: -0.4% (MoM) / -3.9% (YoY)), Germany’s industrial production, registered another decline in February with -0.8 (MoM) / -3.3 (YoY). Also, German industrial orders took another hit and lost for the third consecutive month in a row: in January 2019, -2.6 (MoM) / -3.9 (YoY), after having lost -1.6% (MoM) and a staggering -7.0% (!!!; YoY) in December and -0.2% (MoM) / -3.4% (YoY) in November 2018.

Despite the bad weather and the abysmal economic data, the German unemployment-rate  fell by -33,000 (MoM) and -173,000 (YoY), the percentage remaining stable at 5.3% in February 2019. The future, though, does not look this bright, since the changes in the car industry, as well as the digitalization, will at least lead to a major shift of jobs in the long run (cf. here for a good commentary in Der Spiegel (in German)). While the decline in German corporate insolvencies slowed somewhat compared to the previous month (-13.7% (!) in November 2019), it remained dramatic at -10.2% in December 2018 (YoY). According to Destatis, 19,302 companies went insolvent over the whole of 2018, hence 3.9% fewer than in the previous year. This is the lowest level since the introduction of the German Insolvency Act in 1999.

Against these rather lagging indices, the leading German sentiment indicators now solidly point to an at least weakening, if not recessionary economic trend: the German (Industrial) Purchasing Managers’ Index (PMI) continued its downward path from 51.5 points in early January to 49.7 points in early February to 46.7 points in early March 2019. In sync with this development, the Ifo business climate index also continued its decline for the sixth month now, from 101 points in December 2018 to 99.1 points in January to 98.5 points in February 2019. This is the worst figure since December 2014. Also, the ZEW Indicator continued its decrease with the loss of another 12.2 points from 27.6 points in January to 15.0 points in February 2019 – the worst result since December 2014.

To sum up: Given the abysmal data, not only the OECD (here), but also the Federal Government (here) are right in lowering the economic outlook for Germany ever further – now to 1.0% in GDP-increase. My strong guess is that not only the (based on the fundamentals rather counter-intuitive) rise in the DAX, but also the not-so-strong decline in orders and productivity might solely rely on a new flood of money released by the People’s Bank of China (PBOC) and other Chinese governmental organisations which – according to offical figures – pumped more than half a billion USD in the market in January 2019 alone (cf here). Even if the Brexit does not happen or ends in a “soft” version whatsoever, the outcome will only serve to soften the German landing. Should China stop to inject money into the system and/or there be a chaotic Brexit, all bets are off regarding the German economy.

Leave a Comment