The war of Russia against Ukraine dominates the headlines for over a month now (cf. here for the current situations update, in German). And while other nations and the largest parts of Europe had their respective “freedom day” a while ago, Germany was still fighting its own (unwinable) war against Corona – until the envisioned vaccination-obligation came crushingly down in the German parliament (as to the current German corona-status, cf. here, in German). The war as well as the (retarded) liberation from Corona will surely take a large toll on the German economy in the long run. In February (here), though, the German economy did not look too bad. But, hey, let’s take a look at immediate consequences, if any:
While there are still no figures for the growth (or propably rather: de-growth) of the German economy in the first quarter of 2022, the German BIP will, according to the “Wirtschaftsweisen“, only grow half the rate (1.8%) in 2022 originally predicted in autumn 2021 (here). This rather unceremonious cut is officially linked to the war in the Ukraine. However, since the council of experts also finally took heed of the inflation, which rose already before the war due to various circumstances (cf. the explanations here) and forecasts an inflation of 6.1% (!) for Germany in 2022.
In the direct aftermath of the attack, the German DAX, went straight south, from 13,904 points on 1 March the index crashed to 12,831 points on 8 March before to gaining more than 1,500 points (!) to 14,414 points on 31 March 2022, hence ending close to the point where it had closed the month before (then 14,461 points). To call this development amid a full-time war in the close neighbourhood astonishing would really be an understatement.
German industrial orders could not continue their upward trend of the previous months and, after gaining +2.8% (MoM, +5,5% (YoY) in December 2021, and +1.8% (MoM; +7.3% YoY) in January , new orders declined by -2.2% (MoM; +2.9% YoY) in February 2022. Germany’s industrial production, which had lost -0.3% (MoM, -4.1% YoY) in December 2021 and grew by +2.7% (MoM, +1.8% YoY) in January, remained positive, if only by +0.2% (MoM; +3.2% YoY) in February 2022. German exports,which had ended the year on a positive note with +0.9% (MoM, and even +15.6 (YoY)) in December 2021, more than compensated for their decline of -2.8 (MoM, though growing by +7.5% (YoY)) in January by skyrocketing by +6.4% (MoM; and even +14.3%) in February 2022.
The German Target 2 balance, gained a mere Euro 20bn in the course of March 2022 and ended at Euro 1,169bn. The German inflation-rate, did not only keep its relentless rise of the previous months but accelerated its pace: 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, 5.1% in February to now 7.3% in March 2022 (each YoY). My forecast is that we will see two-digit inflation rates in June 2022 at the latest.
The German labor market kept its robustness despite the war and – after an unemployment rate of 5.2% in October, 5.1% in November and 5.1% in December 2021, 5.4% in January and 5.3% in February 2022 – the rate further fell by another -0.2% to 5.1% in March 2022. Corporate insolvencies in Germany, on the other hand, might now indeed become a concern for the German economy: Although the number fell by another 4.6% in January 2022 (after declining by -1.9% in September, -2.7% in October), but increasing by +4.6% in November and another decline by -4.8% in December 2021 (all YoY)), the early-warning indicator of all insolvency-filings (thus including corporate insolvencies) rose by 27% in March 2022. At least a warning sign, if not more (see my comment here, in German).
The leading German sentiment indicators finally succumbed to the realities of the world at war and “re-synced” in their decline: the German (Industrial) Purchasing Managers’ Index (PMI) lost another 1.5 points and sunk to 56.9 points on 1 April 2022. Also, the ZEW Indicator (for the current situation) lost another -13.3 points and, after -7.4 points in January, -8.1 points in March – stands now at -21.4 points in April 2022. Finally, also the Ifo business climate index, which rose to 95.7 points in January and to 98.9 points in February, now crashed by more than eight points, coming out at 90.8 points at the end of March 2022.
To sum up: the skyrocketing exports in March, the still positive development of industrial production as well as the more than stable labor market remain on the plus side of the German economy. However, the now running-hot inflation, probably rising numbers in insolvency, the falling sentiment indices and – last but not least – the degrading industrial orders stand for a rather negative outlook. While the DAX is still in la-la land, the crash of the various sentiment indicators indicates that at least managers of German companies have seen the abyss and also the Wirtschaftsweise have drawn the consequences from the inflation and the war. Hence, reality is setting in, slowly but constantly.