Although some indices have improved since August (cf. my earlier report, here), the overall picture of the German economy is still grim. Is this the highly awaited plateau or rather a short breathing-space due to the annual “autumn recovery”? Before trying to answer this question, let’s look into the German economy in more details:
The DAX again proved that the stock indices are the last to go in a recession: Despite the clear indications of an upcoming recession, the German DAX , after closing at 11,939 points on 30 August 2019 it jumped by 489 points (!) and closed at 12,428 points on 30 September 2019 (here).
German exports, after rebouncing in July by a surprising +0.7% (MoM) and +3.8% (YoY), contracted again by -1.8% (MoM) and -3.9% (YoY). Also, after already adding Euro 17 Billion in August, the German Target 2 balance added another Euro 17 Billion and reached Euro 915 Billion in September 2019. Meanwhile, the increase of the German inflation-rate further declined from 1.7% (YoY) in July to 1.4% (YoY) in August and only 1.2% in September 2019.
There against, Germany’s industrial production sends a ray of hope, with an increase of +0.3% (MoM (but still falling by -4.0% (YoY)), in August, after -0.6% (MoM) / -4.2% (YoY) in July 2019. With a view to the previous steep and long decline in production (December 2018: -0.4% (MoM) / -3.9% (YoY), January 2019: -0.8 (MoM) / -3.3 (YoY), February: +0.7 (MoM) / -0.4 (YoY), March: +0.5% (MoM) / -0.9% (YoY); April: -1.8% (YoY), -1.9% (MoM); May: 0.3% (MoM), -3.7% (YoY); June: -1.5% (MoM), -5.2% (YoY)), the question arises, whether industrial production has plateaued, albeit on a low level. The coming months will show. However, since German industrial orders declined by another -0.6% (MoM) and 6.7% (YoY) in August 2019, it is hard to fathom on how the rebounce in production shall continue in the coming months.
After the end of the holiday season, German unemployment-rate starts its traditional “autumn recovery”, and decreased by another 85,000 (MoM) and still by 22,000 (YoY) to now 2.234m unemployed, the unemployment rate sinking from 5.1% in August to 4.9% in September 2019. Despite the dark clouds brewing over the (economic) horizon, the job market is still very robust.
German corporate insolvencies, after a steep fall by -14,3% (YoY) in June 2019, tepidly rose by 0.2% (YoY) in July 2019 – not a rise you would call a “reversal”. Hence, let’s look for this figure in the coming months.
The leading German sentiment indicators, despite not being totally in sync, still also point to a recession: the German (Industrial) Purchasing Managers’ Index (PMI) further decreased from 43.5 points on 2 September to 41.7 on 1. October 2019. Also, the ZEW Indicator, after already losing a staggering 12.4 points and falling to -13.5 points in August, lost another -6.4 points in September 2019 and is now at -19.9 points. However, the overall picture – not only for Germany but also for the Eurozone seems to lighten up according to the ZEW. Also, the Ifo business climate index, recovered slightly, from 94.5 points in August 94.6 points in September 2019.
To sum up: Although some indicators, like production or unemployment, as well as the IFO index, indicate an improvement, it is much too early to assess that the crisis has already plateaud. Rather, the current figures indicate the traditonal autumn recovery after the end of the summer holiday season. It is a sure bet that also the third quarter 2019 will be recessionary.
What is most disturbing for me as a Cassandra is that the majority of the indices point to a further recession and seemingly everybody accepts that there already is or will be a recession (as already stated last month, here), but – apart from the ususal suspects demanding the usual action (i.e. that Germany should abolish its “black zero” (meaning the government makes no new debt) and start spending for the whole Eurozone (cf. Mrs. Lagarde in the FT (here)) – there seems to be no real discussion on how to fight the coming downturn. Obviously, the leading elites are to focussed elsewhere, believe the pundits, that it will only be a “mild” recession (whatever that means) or that the central banks will cure the recession by pumping even more money in the market. Probably an odd mix of all the above plus personal preferences.