The German economy in October 2023 – fundamentals do not support hope

The “b(e)acon of hope” we were experiencing in July (here) proved to be rather cognitive dissonance in August (here), but seemingly, the pundits did not realise that sentiment (indices) might prove to be a slippery slope in September (here). But, hey, let’s take a closer look at the how German economy slipp****, mh, fared in October:

While Destatis corrected the German GDP for the 2nd quarter upwards (+0.1% growth instead of zero), it stated the actual GDP for the 3rd quarter 2023 with -0.1% (QoQ). Hence, a recessionary year 2023 will, even if, only avoided by a small margin. And it does not look good for 2024 either, as the Wirtschaftsweise (“wise (wo-)men of the German economy”) made abundantly clear in their traditional annual forecast (“Herbstgutachten”, here). They forecast that the German economy, after a decline by -0.4% – will grow again in 2024 – but only modestly by 0.7%. Even worse, they assess the growth potential not exceeding 0.4%. Hence, even at best, the German economy will not be able to grow by more.

The DAX price index (for an explanation, why I prefer this index now, cf. here), started with 6,033 points into the month, rising to 6,117 until 11 October before crashing to 5,812 on 27 October then starting to recover 5,860 until end of October.

The recent recovery in German industrial orders is slowing: after crashing by -11,7% in July 2023 (MoM, -10.5% YoY), then gaining +3.2% in August (MoM, however still -4.2 YoY), they grew by a mere 0.2% in September 2023 (MoM, still -4.3% YoY). Germany’s industrial production, though, remains deep in recessionary territory: after -0.2% (MoM, +0.7% YoY) in May, -1.5% (MoM, -1.7 YoY) in June, -0.8% (MoM, -2.3% YoY) in July and -0.2% (MoM, even -2.0%) in August, production decreased by another -1.4% in August 2023 (MoM, -3.7% YoY). Finally, German exports, too, further decreased, after -0.1% (MoM, -0.7% YoY) in May, +0.1% (MoM, but -1.9% YoY) in June, -0.9% (MoM, -1.0% YoY) in July and -1.2% (MoM, and even -5.8% YoY) in August, the even decreased by –2.4% in September 2023 (MoM, even -7.5% YoY (!)). For other German KPI’s, I refer you to the “Destatis Deutschland-Dashboard” (here) and (again!) the “Data Commons (Germany)” (here).

The German Target 2 balance slightly increased by roughly Euro 10bn in September 2023 and ended at Euro 1,058bn. The decline of the German inflation-rate continues: starting from its peak of 10.4% in October 2022, the rate started to decrease, first to 10.0% in November, to 8.6% in December 2022, again increased to 8,7% in January (2023), where it remained (8.7%) in February, before slumping down to 7.4% in March and to 7.2% in April, before “crashing” to 6.1% in May, going up again to 6.4%, decreasing to 6.2% in July and to 6.1% in August, even to 4.5% in September and now to 3.8% in October 2023 (each YoY, my last comment here, in German).

The German labor market stabilised, but still nothing to be seen from the usual autumn jump in employment: the unemployment rate – after 5.7% in July, 5.8% in August and again 5.7% in September – remained at 5.7% 2023. German insolvency filings increased for the sixth time in a row now: After 3.1% in May, 13.9% in June, 23.8% in July, 13.8% in August and another 19.5% in September, they increased by a further 22.4% in October 2023 (all YoY; cf. my most recent comment, here, in German)!

The leading German sentiment indicators, seem to indicate a certain plateauing in October 2023: The German (Industrial) Purchasing Managers’ Index (PMI) gained another 1.2 points and stood at 40.8 points on 2 Nvoember 2023. The ZEW Indicator (for the current situation) lost only 0.5 points in October and stands at -79.9 points. The ifo Business Climate Index, gained 1.1 points and ended at 86.9 points in October 2023.

To sum up: While the “hard KPI” – orders, production and exports – still paint a bleak picture of the Germany economy in October 2023, which is  in accordance with the one painted by the Wirtschaftsweise, the German sentiment indicators point to a slowing of the crash in the German economy.

Still, the outlook remains grim – at best. I guess that most of the sentiment stated above is based on pure hope, not data (“the economy can only crash so far”). And the data is cruel – and will probably get more cruel with the start of the new year, when higher taxes (for restaurants) and costs (for highway toll) kick-in and retail will realise that the Christmas-sale was not as good as hoped for. This will add to a governmental budget which is probably shrinking in order to be able to adhere to the latest judgement of the German Federal Constitutional court which rendered a large part of outside-of-the-budget expenses to be unconstitutional, hence, void. Hence, in February 2024 at the latest we will see inflation starting to rise again, if only slightly, and the economy will not grow. To acutally grow, though, there must be some more fundamentals added to the mere hope seen in the German economy until now. And those are seriously lacking.

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