The “cracks” in the German economy described in May seem to widen in some areas, but to heal in others. Hence, a crash is at least not imminent from the early warning indicators, June rather presents a mixed picture:
The famous saying of stock traders to “sell in May and go away” was proven right again in June: After taking a hit already during May with 12,783 on 30 May 2018, the German DAX closed at 12,306 on 29 June 2018.
German exports, after gaining 0.3% (MoM) in April (but +9.3% YoY!), gained another 1.8% (MoM), but lost -1.3% (YoY) in May 2018. Given the extraordinary YoY-gain in April, I would view the YoY-development rather as another statistical glitch than a “real” development.
After “exploding” to Euro 956 Billion in May, the German Target 2 balance grew by another Euro 20bn and has reached Euro 976 Billion in June 2018. Nearing the “One-Trillion”-mark, German news-outlets try to calm the “Michel” (the German Joe Blow), e.g. cf. here.
Germany’s industrial production is either on a roler-coaster ride during the last months or the statistics are not really up to the point: While production took a surprising hit with a minus of –1.6% in February (MoM), it gained 1,7% in March (MoM), and again lost -1,0% in April 2018 (MoM). And now it again gained 2.6% in May (MoM). Also, after declining for four (4!) consecutive months, industrial orders INCREASED by 2.6% in May 2018 (after falling by –2.5% in April 2018). However, to pour some water into the wine: while orders from within the EU increased by 6.7% and the internal orders by 4.3%, orders from the rest of the world fell by 1.3%. The latter might be a sign of the first effects of the trade war and the curreny-depreciation of the emerging markets.
Again, and this time unanimously, the leading German sentiment indicators also point to a weakening economy: The German (Industrial) Purchasing Managers’ Index (PMI) – again declined from 56.9 points in May to 55.9 points in June 2018. In sync with the PMI, the Ifo business climate index fell from 102.2 points in May to 101.8 points in June 2018. CesIfo’ comments: “The index fell markedly in trade. Companies downwardly revised their very good assessments of the current business situation. Their business outlook turned slightly pessimistic for the first time since February 2015. Indicators dropped far more sharply in retailing than in wholesaling.” Finally, also the ZEW Indicator further declined from 87.5 points in May to 80.6 points in June 2018.
So, overall, we have a mixed picture for the German economy: While the “sentiment indices” fall across the board, other early warning indicators, like industrial orders or production, show an upward trend as we are heading into the summer. As foreseen last months, the “decisive months will probably be September and October, especially considering the decision of the US Fed to “raise or not to raise” interest rates further.” So, enjoy summer – it is hopefully not the last one in economic peace!