The German economy in July 2023 – b(e)acon of hope?

After being too optimistic in March (here), realising that we have seen the best (for 2023) already (here) in April, then seeing the German economy going south with astonishing speeed in May (here), larger parts of the public finally realised in June that the economy is indeed stalling (here). And it does not seem to get better in July, But, let’s take a closer look at the German economy:

Even the Deutsche Bundesbank realises now (here, in German) that the German GDP will stagnate in 2023 – at best, after the German economy indeed and literally stalled in the 2nd quarter of 2023 (here) and after the OECD foresasw a stalling German economy in already June (here). But better later than never.

Since the so-called “DAX performance index” – whose development I normally present at this point and which is the commonly referred one, when speaking of the “DAX” (short for “Deutsche Aktien Index”) also counts dividend payments and thus measures the total return, while the “DAX price index” reflects the mere current price paid per share (here). The current environment shows how misleading a performance index may be (if taken as a single indicator which you should not do anyway): The current German DAX performance indicator – despite the sober news about the German economy – undertook a nosedive from 16,187 points on 3rd Jul to 15,515 points on 7th July; however, the ensuing relief rally catapulted the DAX again to 16,434 points on 31 July 2023. The DAX price index, first of all, starts from a lower basis – 6,405 points on 3rd July – also shows a high amplitude during the month’s trading, 6,139 points on 7 July marking the low for the month, but this index only recovers to 6,503 points on 31st of July 2023. Hence, the volatility of the now used index is lower while it presents better the actual status of the German top-listed companies which have been dividend-heavy in the last years but will probably face rather harsh years ahed.

German industrial orders – again (!) increased significantly: after cratering in March 2023 with -10.7% (MoM, -11.0% YoY) and decreasing by another 0.4% (MoM, -9.9% YoY) in April, they recovered by +6.4% (MoM, – 4.3% YoY) in May and now even by +7.0% (MoM, still 3.0% YoY) in June 2023. (Also again) there against, Germany’s industrial production further declined : after -3.4% (MoM, but +1.8% YoY) in March, 0.3% (MoM, 1.6% YoY) in April, production declined by -0.2% (MoM, +0.7% YoY) in May and a further -1.5% (MoM, -1.7 YoY) in June 2023. German exports stopped ist downward trend, if only marginally, after -5.2% (MoM, but +5% YoY) in March, 1.2% (MoM, 1.5% YoY) in April, -0.1% (MoM, -0.7% YoY) in May, exports gained +0.1% (MoM, but -1.9% YoY) in June 2023. For other German KPI’s, I again refer you to the “Destatis Deutschland-Dashboard” (here). 

The German Target 2 balance slightly further declined by Euro 16bn in June 2023 and ended at Euro 1,052bn. The German inflation-rate returned to its downward path in July 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 started to decrease, first to 10.0% in November and further to 8.6% in December 2022, again increased to 8,7% in January (2023), where it remained (8.7%) in February, before slumping down to “only” 7.4% in March and to 7.2% in April, before “crashing” to 6.1% in May, going up again to 6.4% in June and now slightly decreasing to 6.2% in July 2023 (each YoY, my most recent comment here, in German).

The German labor market – in addition to the usual summer slump seems to further take heed of the worsening conditions: the unemployment rate – after 5.7% in April, 5.5% in May and also 5.5% in June – increased to 5.7% in July 2023. In a statement mirroring the one of last month, the Bundesagentur für Arbeit voices its concerns: “With the start of the summer break, unemployment and underemployment rose in July. Employment is increasing, but growth is visibly losing momentum. Labor demand from businesses remains subduedGerman insolvency filings increased for the third time in a row: After declining by -14.1% in April, figures already increased by 3.1% in May, by  another 13.9% in June and even by another 23.8% in July 2023 (all MoM; cf. my most recent comment, here, in German)!

The leading German sentiment indicators remained in their downward sync in July2023: The German (Industrial) Purchasing Managers’ Index (PMI) lost another 1.8 points and stood at 38.8 points on 1 August 2023. The ZEW Indicator (for the current situation) for July 2023 decreased by another 3 points and stands at -59.5 points. Also, the ifo Business Climate Index, lost another 1.3 points and ended at 87.3 points in July 2023.

To sum up: The current German economy presents a rather unsatisfying picture, the only “bacon of hope” (to use a more funny blunder of our current foreign minister, here) remains the growing order book of the German industry. We will see whether this upward trend continues in July. Even if not and as with some other indicators like production or joblessness, the current trend might also be attributed to the holiday season in Germany. The remaining (and probably last) hope for the German economy is that at least in September – when holidays are largely over – the well-known “autumn-boom” kicks in to carry the German economy through the rest of the year. If this kick fails to materialise, though, it will be hard to stick to any beacon of hope.

Leave a Comment