The German economy in September 2021 – it doesn’t look too good…

In the last overview about the German economy for August 2021 I was – given the more than “mixed” data – already wishing for a better autumn (here). Such autumn, though, does not seem to materialise. But let’s take a more detailed view on the further development:

After the dismal figures on Germany’s GDP-growth in the second quarter of 2021 (+1.5% (QoQ), after a decline of -1.8% (QoQ) in the first quarter of 2021), the five wise (wo)men (“Fünf Wirtschaftsweise”), the official expert panel for Germany’s economic outlook lowered their forecast for 2021 from previously 3.6% growth to now only 2.4%.

Also, the German DAX, took a dive, starting at 15,824 points on 1 September, the index then crashed to 15,132 on 20 September before gaining over 500 points and climbing to 15,643 points on 23 September before again losing nearly 280 points and ending at 15,365 points on 29 September 2021. Hence, the DAX has lost 459 in the course of September.

The decline in the DAX followed really, really bad news from the German industry: German industrial orders which had a tremendous bounce back after Corona (+1.5% (MoM) in March, another +2.9% (MoM) in April, a decline by -3.7% (MoM), but unbelievable +54.3%(YoY) in May and by 4.1% (MoM) and 26.2% (YoY) in June, +4.6% (MoM) and 26.5% (YoY) in July 2021) only grew by a meagre 11.6% on an annual basis but even lost -7.7% (!), compared to the previous month, in August 2021. Similarly, Germany’s industrial production, which gained momentum in the previous months, crashed, too: after a gain of +1.0% (MoM) and even +5.4% (YoY) in July, production went south by not less than -4.0% (MoM), though with a miniscule growth of 1,7% (YoY) in August 2021. In sync with the aforementioned KPIs, German exports,also stoppedtheir moderate growth (+1.2%(MoM, +16.1% YoY!) in March, +0.3% (MoM) in April, again +0.3% (MoM) in May and +1.3% (MoM; and even +23.6% YoY) in June and +0.5% (MoM and 12.4% (YoY) in July), and decreased by -1.3% (MoM, yet grew by 14.4% (YoY)) in August 2021. 

The German Target 2 balance gained Euro 78bn (!) during the course of the month and ended at roughly 1,115bn at the end of September 2021. And again, the German inflation-rate has increased: from 1.0% in January 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 and to 4.1% in September 2021 (each YoY). 

There against, the German labor market, remained more than robust and – after an unemployment rate of 5.7% in June and 5.6% in July and the same rate in August 2021 – lost another -0.2% in September and decreased to 5.4%. Also, corporate insolvencies in Germany continued its decline: after decreasing by -31.1% in January, another -21.8% in February, a further decline of -5.6% in March (YoY), another -9% (YoY) in April, another unbelievable -25.8% (YoY) in May and another -11.6% (YoY) in June, the number declined by another -12.3% in July 2021.

The leading German sentiment indicators still remain “de-synced” also in September 2021: While this month the German (Industrial) Purchasing Managers’ Index (PMI), fell by another 4.2 points and ended at 58.4 points on 1 October 2021, the ZEW Indicator (for the current situation) gained another 2.6 points and went from -40.5 points in June, -9.1% in July, to +21,9% in August, to +27.5 points in September and now to 31.9 points in October 2021. Meanwhile, the Ifo business climate index again and further declined, from 101.8 points in June and 100.8 points in July to 99,4 points in August and now 98.8 points in September 2021.

To sum up: As already predicted in my last monthly, I will start this month’s summary again with quoting my July’s summary (here):

While incoming orders and exports seem to be on a good way, production – with its obvious problems in the supply chain – remains a source of concern for the German economy. And this bottleneck of supply is probably responsible for most of the increasing inflation. Given the continued problems with chinese and other harbours, this problem will probably also not go away in the short term, at least. Hence, it is foreseeable that it will take its toll – either by cutting production or increasing prices, or both (!). Keeping these circumstances in mind, the curent forecast of a 3.x% growth of the German economy (which is not really outstanding compared to other economies) seems already ambitious, even before taking into account any new problems related to Corona or any fallout from the Taliban’s victory in Afghanistan. So, let’s hope for a better autumn…

Rarely I have been so on the spot with my pessimism for the coming months than in August – regarding hard facts (Germany’s economic growth in 2021 will not NEARLY reach 3%) and impacts of “soft facts” (supply shortage / inflation). And those factors will not go away anytime soon. At best, those factors will influence Germany’s economic development until mid-2022. At worst – if they do not subside earlier – they will strangle any growth well into 2022 and maybe beyond. Hence, the further outlook of the five wise (wo)men of a growth of 4+% in 2022 is more than ambitious to my mind. But, we will (hopefully) be there to witness the outcome.

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