The German economy in January 2022 – from “distressed”​ to “war”​?

The short-term outlook for 2022 was not look to bad at the end of last month, given the “hard KPIs” of orders, production and exports at the end of December 2021 (here). Also, the “end” of the pandemic indeed begins to materialise. However, rising inflation and a potentially escalating conflict in the Ukrainian might serve as a party crusher. But hey, let’s take a more detailed view on the January 2022 figures before jumping to conclusions:

Probably due to the still ongoing Corona-restrictions, the German BIP, signals – for the last quarter 2021 and the first quarter of 2022 – a “recessionary tendency”: While the 4th quarter 2021 ended with -0.7% (QoQ), the first estimates for Q1 2022 also point at a negativve growth (cf. here, in German) .

After ending the year 2021 just below 16,000 points, the German DAX, started the year already over this mark and reached with 16,271 points on 5 January 2022 its monthly peak already (thereby missing its all-time high o 16,290 points only by a bit, cf. here (in German)), before zig-zagging down to its monthly low of 15,011 points on 24 January, before recovering to 15.471 points on 31 January 2022. Already a high volatility, however, I guess, we will see more of it.

After zig-zagging in the previous months (August: -7.7% (MoM, 11.6% (YoY)); September: +1.3% (MoM, +9.7% (YoY)); October: -6.9% (MoM, -1.0% YoY) November: 3.7% (MoM, +1.3% (YoY)), German industrial orders seem to get on an upward trend with +2.8% (MoM, +5,5% (YoY). There against, Germany’s industrial production, which crashed by -4.0% (MoM; +1,7% (YoY)) in August, lost another -1.1% (MoM, but +1.0% (YoY)) in September, gained 2.8% (MoM, -0.6% YoY) in October and again lost -0.2% (MoM, -2.4% YoY) in November, lost another -0.3% (MoM, -4.1% YoY) in December 2021. German exports,on the other hand, which had declined by -1.2% (MoM, +14.4% (YoY)) in August, -0.7% (MoM, yet still +7.1% YoY) in September, before gaining a considerable +4.1% (MoM, even +8.1% YoY) in October and another +1.7% (MoM, 12.1% YoY) in November, also ended the year on a positive note with +0.9% (MoM, and even +15.6 (YoY) in December 2021. 

The German Target 2 balance, after gaining a considerable Euro 133bn compared to November and ending at roughly 1,260bn at the end of December 2021, lost an also considerable 111bn and ended at 1,149bn at the end of January 2022. The German inflation-rate, although (due to the phasing out of a corona-related VAT-regime in the previous year) decreasing its acceleration a bit, is still way beyond the 2%-target: increasing from 1.0% in January 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, it amounted to 4.9% “only” in January 2022 (each YoY). 

Also, the German labor market remained robust and – after an unemployment rate of 5.2% in October, 5.1% in November and 5.1% in December 2021 – the rate (due to seasonal reasons) increased by +0.3% to 5.4% in January 2022. The number of corporate insolvencies in Germany rose for the first time since September 2019 (!, after decreasing by -31.1% in January, -21.8% in February, -5.6% in March, -9% in April, -25.8% in May, -11.6% in June, -12.3% in July, -2,1% in August, -1.9% in September, -2.7% in October) by +4.6% (all YoY) in November 2021. However, the increasing number of applications for the commencement of regular insolvency proceedings (which include corporate insolvencies) in the previous months (+43.8% November and +18.0% in December 2021 (MoM)) again declined by -17.2% in January 2022. This really abnormal volatility in filings strongly points to statistical glitches on a worrying level.

The leading German sentiment indicators de-synced again: While the German (Industrial) Purchasing Managers’ Index (PMI), rose to 59.8 points on 1 February 2022, the ZEW Indicator (for the current situation (the ZEW did seemingly not publish a report for February and directly went to the March issue)) further fell, after -7.4 points in January, to now -8.1 points in March 2022. There against, Ifo business climate index, which declined from 96,5 points in November to 94.7 points in December 2021, recovered and rose to 95.7 points in January 2022.

To sum up: The aforementioned “recessionary tendencies” for the German economy are probably a consequence of a (too?) long lockdown and the supply-chain hick-ups leading to shortcomings in the industrial output. Assuming that the omicron variant indeed signals the start of the pandemics morphing into an endemic, these tendencies should reverse in due course. However, inflation and – even more – the economic uncertainties accompanying the now “hot” conflict in Ukraine, stop any positive outlook already now. I fear that not only the winter was harsh but that also autumn and summer might disappoint as a bit.

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