The German economy in May 2019 – severe cracks

It seems that the silver lining at Germany’s economic sky in March (here) and April (here) were indeed nothing more as the lights of the (recessionary) train advancing fast. Already a superficial review of Germany’s economic data shows some severe cracks in the success story of the last years – although it still stands to question whether an actual downturn is already “around the corner”. Still some indicators (insolvencies, ZEW) are positive:

The German DAX did not follow its upward path of the previous month, where it gained 819 points: After closing at12.344 points on 30 April 2019, the index reached its monthly top already on 3 May with 12,412 points before then zigzagging down to 11,726 points, thereby not only losing 686 points but also proving the stockbrockers’ wisdom “sell in May and go away” (here). So, a first dead-cat bounce?

Against the trend of the previous months, German exports did not only shrink on a MoM-basis (-3.7%), but also – and for the first time since December 2018 – on an annual basis with -0.5% (compared to March: 1.9%; February: 3.9%; January: 1.7%(all YoY)). This decline might prove the suspicion stated last month that the (only) reason for the previous growht might have been a stock-piling before tariffs (or the Brexit, cf. here for a very good analysis of the respective British figures from Wolf) hit rather than “organic” growth. The next months will show. The (corresponding) German Target 2 balance, again gained some Euro 15 Billion and rose from Euro 919 Billion in April to Euro 934 Billion in May 2019. The German inflation-rate, which rose to 2.0% (YoY) in April 2019 fell back to 1.4% (YoY) again in May 2019.

Germany’s industrial production is in free-fall now, losing in April 2019 on an annual basis (-1.8% (YoY)) as well as on a monthly basis (-1.9% (MoM)) registered a further decline in March 2019 on an annual basis with -0.9% (YoY), while again gaining on a monthly basis (+0.5% MoM)). Hence, the constant decline on an annual basis since December 2018 continues and even accelerates now (December 2018: -0.4% (MoM) / -3.9% (YoY), January: -0.8 (MoM) / -3.3 (YoY), February: +0.7 (MoM) / -0.4 (YoY), March +0.5% (MoM) / -0.9% (YoY)). Also, German industrial orders, followed their declining path of the previous months with -5.3% (YoY), however, gaining 0.3% (MoM) in April 2019 (+0.6 (MoM) / -8.1% (!!!) (YoY) in March, -4.2% (MoM) / -8.4% (!) YoY in February, -2.6 (MoM) / -3.9 (YoY) in January 2019, -1.6% (MoM) / -7.0% (!!!; YoY) in December and -0.2% (MoM) / -3.4% (YoY) in November 2018). However, there are some positive signals, as the actual figures for auto sales in Germany show: They strongly grew in May 2019 (here). Hence, at least German consumers are still spending…

Also, the German unemployment-rate did not fell accross the board like in the previous months, with +7,000 (MoM) but -80,000 (YoY) to 2.236m, or 4.9% in May 2019. Maybe a first crack in the German “Jobwunder”? German corporate insolvencies, after already declining by –2.8% in February went into freefall and shed another -11.5% (!) in March 2019 (-3.2% for the first quarter (YoY)). Given the otherwise negative development of the German economy, a reversal of this trend might be imminent, though. Anecdotal evidence of German restructuring boutiques denying further mandates indeed suggest that.

As in the previous month, the leading German sentiment indicators were not in sync in May: As already observed in the previous month, the German (Industrial) Purchasing Managers’ Index (PMI) seems to plateau on a low basis now, now slightly decreasing from 44.4 points on 1 May to 44.3 points on 3 June 2019. There against, the assessment of the current economic situation, according to the ZEW Indicator, lightened somewhat in May: After 5.5 points in April, the index gained some 2.7 points and now stands at 8.2 points. Also, the Ifo business climate index, which declined in April to only 99.1 points in April already, lost another 1.2 points and came out at 97.9 points in May 2019.

To sum up: The core figures of the export-oriented German economy are pointing south. Although the first negative figures regarding employment might rather be attributed to statistical changes, they also might be a first sign for a lagging indicator to also turn south – where most of the other indicators are already pointing at for the last months (with the prominent exception of the ZEW-indicator). Going into the last month of this 2nd quarter, the chances for a GDP turning negative are there.

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