The German economy in October 2020 – Lockdown 2.0

Before the Lockdown 2.0, the German German economy – after bottoming out in May (cf. here) – rebounding in June (cf. here), July (cf. here) and August (here) – somewhat climaxed in September 2020 (here). The question, hence, is whether in anticipation of the new Lockdown in Germany (which finally came into force only on 2 November 2020 but was heavily discussed since mid-October) already put a break on the rising economy in October. So, let’s look into the German economy in some more detail:

Indeed, rather unsurprinsingly given the growth rate of the previous months, the German GDP, grew by 8.5 % compared to the previous quarter (but still shrank by -3.9% on a YoY basis). The German minister of economy, Mr. Altmaier’s, view that the German economy will not shrink by more than -5.5% (here in German) in 2020 is now supported by some other economists (e.g. the IFO-institute, here). Me, personally, I doubt it. And even when this scenario proves to be correct – the literal “price tag” attached to it in the form of new debt, will probably choke the economy for the years to come.

The DAX, probably anticipating the next Locksown, continued its downward trend started in September: Starting at 12,730 points on 1. October, the index lost 1,174 (!) points and ended at ended at 11,556 points on 30 October 2020.

The rebound of German industrial orders is – after having increased by 4.5% (MoM, but still down -2.2% YoY) in August – again losing steam with a rather modest rise of +0.5% (MoM, but also only -1.9 YoY) in September 2020. There against, Germany’s industrial production, after loosing -0.2% (MoM, but a rather major -9.6% YoY) in August, gained a respectable 1.6% (MoM, but lost another considerable -7.3% YoY) in September 2020. German exports, are still slowly gaining traction: after gaining 2.4% (MoM, but stil down by -10.2% YoY) in August, they gained another 2.3% (MoM, but still down 3.8% YoY) in September 2020.

After having passed the the psychologically important landmark of Euro 1 Trillion in June and passing the 1.1 Trillion-landmark in September, the continues increase of the German Target 2 balance, slowed somewhat and totalled “only Euro 1.047 Trillion in September 2020 – thus losing Euro 68 bn in the course of a month. The German inflation-rate, after crossing the psychologically important zero mark and going negative by -0.1% in July (being at or around zero after that) was again negative again in October 2020, again (as in the previous month) with -0.2%.

Also, the German labor market resumed its positive activity from the previous month where it – due to the ususal seasonal activites – turned positive by losing 108,000 and lost another 87,000 unemployed in October 2020 (MoM, but increasing again by a still unbelievable +556,000 YoY) or -0.2% to 2.760m unemployed to an overall rate of 6.0%. German corporate insolvencies – no surprises here – continued their freefall with another mindblowing fall of -45.8 % (!)(YoY) of opened procedures in October 2020.

The leading German sentiment indicators, also seem to anticipate the consequences of the next lockdown: while the German (Industrial) Purchasing Managers’ Index (PMI), gained a moderate 1,8 points and ended at 58,2 points on 2 November 2020. Also, the ZEW Indicator (for the current situation) – after reaching -66.2 points in September – gained another 6.7 points to 59,5 points in October 2020. There against, the Ifo business climate index fell from 93.4 points in September 2020 to 92.7 points in October 2020. This is the first fall after five consecutive increases.

To sum up: Indeed, September seemed to mark a certain peak for the German economy, but even if October presents some already declining indicators, the overall picture is still positive. So, still not bad given the circumstances – altough powered by the ECB.

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