The war in Ukraine currently sees a change of initiative – from Russia to Ukraine (for regular updates, cf. here, in German) which seem to validate the optimism Germany’s economy developed already in June 2022 (cf. here). Still, the question is whether this optimism is warranted – which I denied. So, let’s take a closer look:
Already the first quarter of 2022 saw a growth of Germany’s GDP by a mere 0.2% (now revised to +0.8%). In the second quarter, Germany’s economy stalled with an (exact) zero-growth (0.0% (QoQ)). Also given the (mostly downward) revions regarding previous years, the recent Bundesbank and “Wirtschaftsweise” estimates as to the GDP-growth for 2021 (1.9% and 1.8% respectively), the IFO Economic Forecast as of June still foreseeing a GDP-growth of 2.5% in 2022 and 3.7% in 2023 (here) seems even more ridicolous.
The German DAX enjoyed another “crack-up-boom” in July, this time zig-zagging its way rather steadily up from 12,627 points on 1 July, ending the month with 13,353 points on 29 July 2022, thereby gaining 726 points in the course of the month.
German industrial orders declined in June: after -2.2% (MoM; +2.9% YoY) in February, 0.6% (MoM; and even 20.7% YoY) in March, -2.7% (MoM; -6.2% YoY) in April 2022, 0.1% (MoM; -3.1 YoY) in May, they declined by -0.4 (MoM; and even -9.0% YoY!) in June 2022. Germany’s industrial production, declining by -3.9% (MoM; -3.5% YoY) in March, rising by 0.7% (MoM, but -2.2% YoY) in April, and gaining 0.2% (MoM, -1.5% YoY) in May, now gained another rather meagre +0.4% (MoM, but -0.5% YoY) in June 2022. There against, German exports,whose skyrocketing in the previous months (by +6.4% (MoM; and even +14.3%) in February, -3.3% (MoM, but +8.1% YoY) in March, +4.4% (MoM, and even +12.9% YoY) in April)) had taken a hit, albeit only -0.5% (MoM, but +11.7% YoY) in May, resumed its rise with +4.5% (MoM, and even +18.4% YoY) in June 2022.
The German Target 2 balance, sunk by a exactly Euro 50bn in the course of July 2022 and ended at Euro 1,166bn. The German inflation-rate, further slowed its increase in July 2022: 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, it further decreased to 7.5% in June 2022 (each YoY). Given the current price-increases in the energy-sector and the rather non-reaction of the ECB, even German pundits now regard a future two-digit inflation-rate as possible, though (cf. my evaluation here, in German).
Still due to the registration of Ukrainian refugees, the German labor market, which principally still keeps its robustness: the unemployment rate – after 5.3% in February, 5.1% in March, 5.0% in April, 4.9% in May, 5.2% in June – grew by another +0.2% to 5.4% in July 2022. (Applications to commence) business insolvencies in Germany continued their zig-zag-course of the previous months and, after a stark rise by 27% in March, followed by a near-equal stark decline by -20.8% in April 2022, another more modest rise by 8.4% in May, another decline by -7.6% in June, now further declined by -4.2% in July 2022 (cf. my comment, here, in German).
The leading German sentiment indicators de-synced again: the German (Industrial) Purchasing Managers’ Index (PMI) decreased by 2.7 points and stood at 49.3 points on 1 August 2022. There against, the ZEW Indicator (for the current situation) gained 8.9 points and increased to -27.6 points in July 2022. The Ifo business climate index, though, considerably cooled and fell to 88.6 points in July, down from 92.3 points in June 2022.
To sum up: To name the current picture the German economy presents as “mixed” would be an understatement of sorts. While some figures – like the “hard” KPI of exports – seem to suppport the optimism of last month, other figures, like the equally “hard” GDP, seem to point to a gloomier direction. Overall, the optimism of last month has largely vanished. This is also due to the worries about the safety of energy supply in the next winter after Russia considerably lowered its gas deliveries to Germany in the last month. Overall, even a “cooling off” of the conflicts in Ukraine and the South China Sea will not lead to an immediate resolution of corona-induced difficulties in the supply chains or reduce inflation to harmless rates. In other words, even if the “hottest” issues cool down somewhat, other “hot spots” are already causing enough friction to slow down economic development in the near future.