The German economy in January 2020 – before the virus hits

While the last “Monthlies” pointed to a plateauing of the German economy (cf. here and here), the beginning of January marked the point where everybody began to take the threats emanating from the Corona-virus seriously. However, since the economic impact was only starting to gain traction, it is quite interesting to see how the German economy evolved prior to this crucial chain of events. But, hey, let’s look into the German economy in some more detail:

Although there are no definitive figures yet, it seems that German GDP grew by 0.6% in 2019, but stagnated (again) in the fourth quarter of 2019. While the DAX went nowhere in December it rather went ballistic in January: Starting at 13,385 on 2nd January 2020, it gained 191 points and reached 13,576 on 24th January – only than to crash and fall to 12,981 on 31st of January 2020 (here) – probably due to the onset of fears re the virus.

German exports, after losing -2.3% (MoM) and -2.9% (YoY) in November, did resume their upward trend of the previous months, (+1.5% (MoM) / +4.6% (YoY) in September and 1.2% (MoM) / 1.9% (YoY) in October), with a plus of 0.1% (MoM) and 2.3% (YoY) in December 2019, bringing the total for the year 2019 to +0.8% compared to 2018. With these figures, Germany, again, earned the dubious title of “world export champion” (here). In stark contrast to this development, the German Target 2 balance (after adding around Euro 33bn in November and Euro 25bn in December 2019) fell by around Euro 84bn (!) to Euro 811 Billion in the end of January 2020. This might be a sign that the strong year-end figures for the exports might not have lasted to January. The German inflation-rate, after already rising to 1.5% inDecember 2019, climbed to 1.7% in January 2020 (all YoY). Hence, the rate is indeed approaching the ECB’s target range. It will be quite interesting to see what the ECB will do to its interest-rates, once this range is sustainably reached.

German industrial orders, after already declining by -0.4% (MoM) / -5.5% (YoY) in October and -1.3% (MoM) / -6.5% (YoY) in November went further south with another decline of -2.1% (MoM) / -8.7% (YoY) in December 2019. Also, Germany’s industrial production figures went again south in December 2019, with -3.5% (MoM) / -6.8% (YoY), after gaining 1.1% (MoM) / -2.6% (YoY) in November but decreasing -1.7% (MoM) / -5.3% (YoY) in October and -0.6% (MoM) / -4.3% (YoY) in September 2019.

After alredy increasing by 46,000 (MoM) / 18,000 (YoY) in December 2019, German unemployment-rate increased by another 198,000 (MoM) / 20,000 (YoY) in January 2020 to now 2.426m unemployed, the unemployment rate rising by 0.4% to 5.3%. German corporate insolvencies, which rebounded with a vengeance already in October 2019 by an incredible 6.0% in October, fell by another – even more incredible -7.5% (YoY) in November 2019.

The leading German sentiment indicators are still not in sync: the German (Industrial) Purchasing Managers’ Index (PMI) increased from 43.7 on 2nd January to 45.3 on 3rd February 2020. Also, the ZEW Indicator (for the current situation), gained another 10.4 points and rose from -19.9 points in December 2019 to -9.5 points in January 2020 (while, again the outlook dramatically improved!). On the other hand, the Ifo business climate index, which improved to 96.3 points in December 2019, lost 0.4 points and declined to 95.9 points in January 2020.

To sum up: I could simply repeat my summary of the last two months (“While some early indicators, such as the sentiment indicators and exports point to a positive reversal of the recessionary trends of the last months / year, production and new orders remain stuck in a downward trend.”). Hence, even before corona (will) hit the economy, the “plateau” on which the German economy seemed to have declined to in the last half of 2019, was rather fragile. What is quite “interesting” (or rather worrying) in this contex, though, is the steady(ing) discrepancy between the sentiment indicators and the “real-life” situation: While GDP, orders, production, employment, etc. slow for several months now, the sentiment is still improving. And: while some of the indicators lag behind and are thus recorded before the corona-virus seriously started to hit the world, the sentiment indicators are fairly recent. My only explanation is that managers sensed (and still think) that the recent downturn hit a certain plateau and would improve soon. However, I would doubt the German economy only remaining on a plateau for the coming months – and not only due to the ongoing restructuring of the automotive sector. The corona-virus will start to hit the “real” economy very soon (probably already with the February figures) and it remains to be seen how long this effect will last.

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