The German economy in March 2023 – looking good at the surface…

…and maybe not rotten to the core. Still, to forecast the development of the German economy is more an art than science: While we enjoyed a  “promising start” in January (here), the February figures (here) put a serious damper on it. So let’s take a closer look on how the German economy fared in March 2023 to see how it’s going:

The German National Bank, the Bundesbank, which last month declared that the German economy was “likely to decline slightly in first quarter” 2023 (here) this month backpedals and assumes that the economy slightly grew in the first quarter (here). The truth lies in the middle, though: According to brand-new figures, the German economy stalled in the first quarter (here). Without knowing these figures, the “wise (wo-)men” (“Wirtschaftsweise”) still forecast a small growth of 0.2% only (here) for the rest of the year, while other German leading economic institutes now forecast a growth of 0.3% (here) and the the government predicts even a 0.4% growth (here). There against, the IMF forecasts a recession for Germany with a decline of -0.2% (here). 

Although the German DAX continued it’s plateau phase in March 2023- from 15,399 points on 1st March to 15,568 points on 31st March, thus gaining a mere 169 points, the dive and re-climb it took in between, down to 14,715 points on 20 March, should not be overlooked.

German industrial orders, fortunately, made further gains: after -5.3% (MoM, even -11.0% YoY!) in November and 3.2% (MoM, but -10,1% YoY) in December 2022, 1.0% (MoM, but -10.9 YoY) in January, orders rose by 4.8% (MoM, -5.7% YoY) in February 2023. Also, Germany’s industrial production further increased: after +0.2% (MoM, but -0,4% YoY) in November and -3.2% (MoM,  -3,9% YoY) in December 2022, +3.5% (MoM, but -1.6% YoY) in January, production rose by another 2.0% (MoM, +0.6% YoY) in February  2023. German exports, which had just reversed their downward trend of Q4 in the previous month rather rallied: after -0.3% (MoM, but +13.3% YoY) in November and even -6,3% (MoM, +5,9% YoY) in December 2022, +2.1% (MoM, and even 8.6% YoY) in January, exports grew by 4.0% (MoM, +7.6% YoY) in February 2023. For other German KPI’s, I again refer you to the “Destatis Deutschland-Dashboard” (here). 

The German Target 2 balance, rose by some Euro 56bn in the course of March 2023 and ended at Euro 1,170bn. The German inflation-rate, sharply declined in March 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 and now slumped to “only” 7.4% (each YoY).

The German labor market in March 2023 remained robust overall. However, the weak economy is leaving its mark: the spring revival is only beginning at a restrained pace and the unemployment rate – after 5.3% in November, 5.4% in December 2022, 5.7% in January and also 5.7% in February stayed at 5.7% also in March 2023. German insolvency filings, which declined by –3,2% in January 2023, rose by 10.8% in February 2023, further rose in March 2023, this time by even 13.2% (MoM; cf. my most recent comment, here, in German)! ZWE

The leading German sentiment indicators remained in sync for January 2023: the German (Industrial) Purchasing Managers’ Index (PMI) rose by 1.4 points and stood at 44.7 points on 3 April 2023. The ZEW Indicator (for the current situation) for March 2023 1.4 points to -46.5 points. The ifo Business Climate Index, which rose from 86.3 points in November to 88.6 points in December 2022, to 90.2 points in January and to even 91.1 points in February, further rose to 93.3 points in March 2023.

To sum up: Again, “hard” KPI’s of the German economy – orders, production, exports – follow the lines set out by the sentiment indices throughout the last months and indeed rise. In contrast to last month, though, two of the three sentiment indicators seem to support the rise in hard KPI’s which hopefully have a longer life-span than previously expected. The now more optimistic forecasts of German institutions indeed seem to point to the German economy faring better than previously anticipated.

Also, higher numbers in (corporate) insolvencies, as a lagging indicator, could be attributed to a washout of zombies rather than to an unstable economy. And the influx of Ukrainian refugees could be at least partly responsible for the slow spring recovery of the labor market. Finally, inflation could be regarded as being contained.


On the other hand, on a higher level, the coming demise of First Republic Bank (anything else would be a miracle, cf. only here) will again wreck havoc on at least the nerves of (central) bankers if not more. Inflation – after the tariff agreement in the public sector which will lead to wage increases of up to 16 (sixteen!) percent (cf. here, in German) – will probably get a second breath and  at least not come near the 2%-target set by the central banks throughout the year. And we are not seeing the results of the coming green energy bill to the German economy yet – although the fallout of the Viessmann sale (here) already indicates a certain “losing” streak of the German economy. And the most recent figures regarding GDP-growth seem to support a more negative outlook for the rest of the year.

Hence, I wouldn’t and personally I don’t bet on a positive outcome for the German economy but rather stick to the IMF forecast which combined with a still high inflation rate would indeed embody the feared stagflationary scenario.

Personally, I do not think, though, that 2023 is relevant, rather, we have set the conditions for the years to come. And there is a real risk that they are worse than 2023.

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