The German Economy in March 2017 – silver lining ahead

After all these questionmarks, doubts and armageddon-foresights (cf. for February here) now that: Hope! First, we all survived the 15th of March 2017 – despite the doomsday-sayers, neither the debt-ceiling nor the rate-hike in the US nor the Dutch elections could derail the “economic train” which seems to get momentum even beyond Germany now. But, as always, I am getting ahead of myself. So, let’s see what’s behind the (German) curtain for this month:

After closing at 11,834 points on 28 February, the German DAX gained nearly 500 points and closed at 12,312 points on Friday, 31st March 2017, merely 80 points short of a new record-high. So, at least in Germany, the Trump-rally is still in full force – while in the US it might have lost a bit of its momentum, since the Dow Jones, coming from 20,812 at the end of February, lost nearly 150 points over the month, in the process once falling for eight consecutive days, before closing at 20,663 on 31st March 2017. It will be interesing to follow the Dow through the next month.

According to the most recent figures, German exports in January 2017 climbed to Euro 98bn, thereby rising by 2.7% MoM (after a decrease of 2.8% in December 2016) and even by 11.8% on a YoY-basis. So that makes a good start into 2017, after German exports set a new record in 2016 already. However, in this context, one should not underestimate another stark increase in Target-2-balances, which are now north of Euro 800bn! Not only I warned of this de-facto credit-system on many occassions (for the last time – last month!). Also, it is obvious that other countries “suffering” from these exports (like the US or countries in the EU) will fight this trade surplus.

March 2017 saw a much lower increase in the German inflation-rate than the previous months: after 2.2% in February, the inflation-rate with an increase of merely 1.6% remained well below the target of 2.0% set by the ECB.

German unemployment-rate hit another low in March with 6.0%, the number of unemployed fell by another 100,000 to 2.662m (MoM) and even by 183,000 (YoY). Again, these low levels were not seen since the German re-unification. Experts now consider it possible that the average unemployment-rate for 2017 will be as low as 5.7% while nearly another 700,000 jobs will be created.

The German (Industrial) Purchasing Managers’ Index (PMI) rose another 1.5 points from 56.8 points in February to 58,3 points in March 2017. In sync with the PMI, the Ifo business climate index rose from 111.1 points in February to 112,3 points in March 2017. The ZEW Indicator for the current economic sentiment, also in sync with PMI and IFO, gained 0.9 points from 76.4 points in February to 77.3 points in March 2017.

However, it is not only soft data (=surveys) which underpin a certain optimism. Since global trade seems to have hit a seven-year high, there might indeed be a continued growth story. All the more, since also other indices corroborate with the (hard and soft) data: The Cass-Freight Index (for transport of goods in North America) has had a good start into 2017 translating to higher trade activity in the US. On the soft-data, the (beating expectations) rise in Chinese PMI might also be a sign for the Chinese economy reaping the fruits of the (poisonus) “debt-tree” (lawyers will understand, what I mean with that one, for everybody else, look here). Also, the economy of the European Union seems to pick up pace – despite Brexit. So, in the end, Germany might no longer be the “island of growth” within a sea of lackluster economies – which would indeed by a good sign.

These “happy figures” are contrasted by some other hard and soft data, though: In January, I reported a sudden drop on incoming orders in the construction industry, now in March, the German economy suffers a “sudden drop” in industry-related orders – the worst since 2009. A sign which went largely unnoticed by the German media, its broader implications have only been highlighed in a Zerohedge-article. Also (on the “soft side”), there are some opponents to the general optimistic oulook, since e.g. German stock-brockers do not seem to be so optimistic according to a recent Handelsblatt-survey. Also, Die Welt is not too enthusiastic about the consequences of the recent IFO-record-high as reported above. Finally, the Hamburgische Weltwirtschaftsinstitut lowered its forecast as to the German GDP-growth in 2017 to 1.1% due to the rising inflation.

Although these negative signs should be observed closely in the coming weeks, I sincerely hope that in the next months the global economy gains more pace. Even if I do not believe that the global economy will be able to outgrow its debt-load (cf. my last month’s runt for detail), actual GDP-growth might prove me wrong in the (very!) long run. Let’s keep our fingers crossed to that one.

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