The German economy in February 2023 – the light at the end of the tunnel…

…might indeed prove to be from an incoming train and not – as I summised the previous months (While I thought in the summer 2022 that we were nearing a recession in 2023, a silver-lining already occured in October (here) which got even brighter in November (here) and December 2022 (here)) – and not the silver lining of a “promising start” I made out in January (here). But hey, let’s take a closer look on how the German economy fared in February 2023 to find out more:

According to the German National Bank, the Bundesbank, the German economy is “likely to decline slightly in first quarter” 2023 (here). Since the economy already contracted in Q4/2022 Germany will thus enter into a technical recession. And also for the rest of the year the “wise (wo-)men” (“Wirtschaftsweise”) don’t really carry the torch of hope, either. They forecast a “growth” of 0.2% only (here).

From a “flying start” into the year German DAX somewhat nearly plateaued in February: Had the index gained nearly a thousand points in January, the rise in February decreased to a mere 174 points: From 15,125 points on February, 1st to 15,299 points on February, 28th.

German industrial orders, at least still made moderate gains: after 0.8% (MoM, but -3.2% YoY) in October, -5.3% (MoM, even -11.0% YoY!) in November and 3.2% (MoM, but -10,1% YoY) 2022, they gained only 1.0% (MoM, but -10.9 YoY) in January 2023. Germany’s industrial production strongly increased: after -0.1% (MoM, and stalled (0.0%) YoY) in October, +0.2% (MoM, but -0,4% YoY) in November and -3.2% (MoM, and even -3,9% YoY) in December 2022, production rose by +3.5% (MoM, but -1.6% YoY) in January 2023. Finally, German exports, which had declined throughout Q4/2022, also reversed the trend: after -0.6% (MoM, but +14.2% YoY) in October, -0.3% (MoM, but +13.3% YoY) in November and even -6,3% (MoM, +5,9% YoY) in December 2022, exports grew by +2.1% (MoM, and even 8.6% YoY). For other German KPI’s, I again refer you to the “Destatis Deutschland-Dashboard” (here). 

The German Target 2 balance, shed some further Euro 48bn in the course of February 2023 and ended at Euro 1,114bn. The German inflation-rate, stalled in February 2023: 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, increased to 8,7% in January (2023), where it remained (8.7%) in February (each YoY; cf. my most recent evaluation here, in German).

The German labor market remains robust, proven this time by the fact that unemployment only rose by a negligible 4,000 and the unemployment rate – after 5.3% in October, 5.3% in November, 5.4% in December 2022 and 5.7% in January – also remained at 5.7% in February 2023. German insolvency filings, which – after three consecutive months of increase (+18.4% in October, +1.2% in November and +3.1% in December 2022) – declined by –3,2% in January 2023 now rose again by 10.8% in February 2023. Also, the first assessments indicating that corporate insolvencies are on the rise, prove to be true: for the first time, since they rose by 4.3% in 2022, the first rise since 2009 (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) lost (!) 1.0 point and stood at 46.3 points on 1 February 2023. The (now available) ZEW Indicator (for the current situation) for February gained 13,5 points and rose to -45,1 points; however, according to a recent statement, the index will lose 1.1 points and therefore sink to -46.5 points again in March 2023. Unfortunately, the ifo Business Climate Index, which rose from 86.3 points in November to 88.6 points in December 2022, to 90.2 points in January and to even 91.1 points in February 2023, has not been updated until the publication of this post.

To sum up: While the “hard” KPI’s of the German economy – orders, production, exports, job market – follow the lines set out by the sentiment indices throughout the last months and indeed rise, (corporate) insolvencies, as a lagging indicator, also rise. Furthermore, the force of inflation is far from being tamed. And now two of the three sentiment indicators seems to indicate that the rise in hard KPI’s might only have (had) a short life-span. Should this development play out, we are/were faced with a “crack-up-boom” all along (I discussed this phenomen already at length seven (7!) years ago here (in German)). The current banking-crisis (cf. here for the current development (in German)) might also exacerbate the near-future decline. So, let’s keep our fingers crossed that the German economy does not end as a train wreck at the end of 2023.

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