Is the German Economy Booming? No...

The Globe and Mail reports:

While the rest of Europe is just beginning to crawl out of crisis and into the first tentative rays of growth and recovery, Germany is positively booming. Export sales are up dramatically, spurred especially by Chinese sales; consumer spending has returned sharply; banks and housing markets are unscathed – and, most significantly, while the rest of the continent and the United States experienced harsh job losses, Germany has actually seen unemployment fall this year to 7 per cent, below Spain’s boom-time level.

How? By bailing out workers with a unique plan that has short-term implications that aren't all that different than what is done in the U.S.:

In a system known as kurzarbeit, or “short-time work,” the German government pays up to two-thirds of the salary of employees who would otherwise be laid off, as long as they remain employed. The employer is expected to cover any hours actually worked and to keep up their pension and benefit payments.

Similar to U.S. unemployment benefits when you think about it... workers only receive government aid if they are not working (though they are not counted as unemployed even if they are working 2 days a week), but with unique long term differences.

The good? Corporations have an incentive to keep people on the payroll even if they are not needed; should the economy rebound, these individuals will be there.

The bad? Corporations have an incentive to keep people on the payroll even if they are not needed (i.e. the same thing); over the long run this may pose a structural headwind to future growth as it will prevent new companies from emerging post-recession; one of the sole benefits of recessions historically has been the new ventures that emerge (excess workers for entrepreneurs + no opportunity cost for unemployed workers = ripe recipe for new companies).

As for the quote that the German economy is "positively booming" (note German Q2 GDP has not yet been released).



Not so much when compared to the U.S., even though the U.S. recession started first.

Source: BEA

Germany: Improving Economy, Idea of Fast Turnaround Fading

Some insight into Germany, European's largest economy. Similar to the U.S. the current situation is rather ugly, but improving, while optimism for the future is stronger, but expectations for a fast rebound are fading.

Bloomberg details:

German investor confidence declined more than economists forecast in November as the prospect of expiring government stimulus programs and rising unemployment tempered expectations for economic growth.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to 51.1 from 56 in October. The median forecast in a Bloomberg News survey of 39 economists was for a decline to 55.

ZEW’s gauge of the current economic situation rose to minus 65.6 from minus 72.2 in October. The DAX index and the euro fell after the report and the yield on German 10-year government bonds slipped 3 basis to 3.27 percent.

Source: ZEW

German Investor Confidence Slightly Lower

Bloomberg reports:

German investor confidence unexpectedly declined for the first time in three months in October amid concerns that the pace of the nascent recovery in Europe’s largest economy may ease.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months ahead, dropped to 56 from 57.7 in September. Economists had forecast an increase to 58.8, the median of 36 forecasts in a Bloomberg News survey showed.

Germany’s benchmark DAX index has surged around 57 percent since early March as the economy pulled out of the worst recession since World War II. While growth probably accelerated in the third quarter, according to the Bundesbank, the pace of the recovery may be tempered by rising unemployment, the fading of stimulus measures and the euro’s increase against the dollar.

“Enthusiasm is now gradually giving way to realism and the German economy is about to enter calmer waters,” said Carsten Brzeski, an economist at ING Groep in Brussels. Today’s reading is “no reason to fall back into depression.”

Source: ZEW

The German GDP Recovery

Bloomberg details:

Government spending lifted Germany out of its worst recession since World War II, a breakdown of second-quarter gross domestic product shows.

Government spending rose 0.4 percent from the first quarter and helped to boost private consumption, which gained 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Construction investment increased 1.4 percent. GDP advanced a seasonally adjusted 0.3 percent, the office said, confirming an initial estimate from Aug. 13. The unexpected return to growth in Europe’s largest economy followed four quarters of contraction.

While consumption and government spending did grow at 0.7% and 0.4% respectively, as we can see below, they are such a small part of German GDP that they really were not the driver of economic growth. The real impact came from an increase in net exports (exports declined, but by a smaller -1.2% QoQ drop than the -5.1% drop in imports).



In other words, it may have been government spending that helped Germany out of recession, but possibly not theirs.

Source: Destatis

German Confidence Jumps

Bloomberg details:

German investor confidence jumped to its highest level in more than three years in August after government stimulus and rising exports pulled Europe’s largest economy out of recession.

The ZEW Center for European Economic Research said its index of investor and analyst expectations rose to 56.1 from 39.5 in July. Economists predicted a gain to 45, according to the median of 35 forecasts in a Bloomberg News survey. That’s the highest since April 2006. The survey aims to predict economic developments six months in advance.

“The German economy is out of recession, but not out of the woods,” said Carsten Brzeski, an economist at ING Groep NV in Brussels. “In all the enthusiasm about the recent numbers and the near-term outlook, there are still some impediments to a real recovery, the most pressing one being the worsening labor market.”

ZEW’s gauge of the current economic situation rose to minus 77.2 from minus 89.3 in July, an improvement that the Mannheim, Germany-based institute said was helped by last week’s GDP figures. A survey of 19 economists expected a reading of minus 85. The Economy Ministry has said its forecast for a 6 percent economic contraction this year may now be too pessimistic.

Economic Sentiment vs. Economic Situation


The following chart is just an average of the current sentiment and outlook (how important is the view that things will improve if current levels are awful). Again, much improvement.



Source: ZEW.de

Deflation Hits Germany

Bloomberg details:

Consumer prices in Germany posted their first annual decline in more than 22 years in July and wholesale prices plunged after energy costs fell and the worst recession since World War II curbed spending.

Consumer prices, calculated using a harmonized European Union method, fell 0.7 percent from a year earlier, more than initially estimated, the Federal Statistics Office in Wiesbaden said today. A separate report showed wholesale prices dropped 10.6 percent in July from a year ago, the biggest decline since the data were first compiled in 1968.

The statistics office previously reported that German harmonized consumer prices fell 0.6 percent in July from a year earlier. Prices fell 0.1 percent from June, it said. On a non- harmonized basis, consumer prices declined 0.5 percent in July, the first annual decrease since March 1987.

Source: Destatis

When Falling Prices "Aid" Confidence

Missed this yesterday. BBC (via Credit Writedowns) details:

German consumer prices fell for the first time in 22 years in July, official figures have shown. Prices fell 0.6% in July from a year earlier – the first fall since March 1987, when they declined by 0.3%. The decline was largely due to falls in energy prices, which peaked in summer 2008, and analysts said Germany was unlikely to see a deflationary spiral. Prices can fall for a short time without hurting the economy, but prolonged declines can be damaging.

Dirk Schumacher, an analyst at Goldman Sachs, said that the falling prices could help the economy in the short term. "Falling prices are aiding consumer confidence and purchasing power. That’s aiding consumption," he said."This is not deflation. We’re still far away from that. It’s no cause for alarm," he added.

Back to Ed from Credit Writedowns:

Right. Keep telling yourself that.

Prices are falling. This is deflation and it should underline for anyone with half a brain that deflationary forces of demand growth declines, deleveraging and overcapacity are still at work.

Source: DeStatis.DE

German Investor Confidence "Unexpectedly" Fell

Bloomberg loves the term "unexpected":

German investor confidence unexpectedly fell in July, suggesting the recovery in Europe’s largest economy may take longer to materialize.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, declined to 39.5 from 44.8 in June. Economists expected a gain to 47.8, the median of 36 forecasts in a Bloomberg News survey showed.

The government says gross domestic product will plunge 6 percent this year, the most since World War II, even as the economy shows signs of stabilizing after its first-half freefall. Industrial output jumped 3.7 percent in May from April, the biggest gain in almost 16 years, and business confidence increased for a third month in June. The benchmark DAX share index has advanced 30 percent in the past four months.

Source: ZEW.DE

German Factory Orders Up 4.4% on the Month... Down 29.4% YoY

Meant to throw this in the earlier post with the British Industrial Production, but slipped up. I understand we don't need two European production data points in one morning, but here it is... ForexTV reports:

Tuesday, the Federal Ministry of Economics and Technology said German factory orders recorded a monthly growth of 4.4% in May, much larger than the expected increase of 0.5% and April's 0.1% rise.

Year-on-year, orders plummeted 29.4% in May, slower than the 37.1% decline seen in April. Domestic orders were down 25%, while foreign orders plunged 33%.
In the two month comparison, ordersincreased 4.2%. Domestic and foreign demand climbed 3.9% and 4.5%, respectively.

Tuesday, the Federal Ministry of Economics and Technology said German factory orders recorded a monthly growth of 4.4% in May, much larger than the expected increase of 0.5% and April's 0.1% rise.

Source: destatis.de

German Business Confidence at All Time Low... "Optimism" Abounds

Another 'When "It Can't Possible Get Worse than This" is a Good Thing'.

The AFP reports:

German business confidence rose to a six-month high in May, a key sentiment index showed on Monday, suggesting that Europe's top economy might be pulling out of its worst slump in over 60 years. The closely watched Ifo indicator rose for a second consecutive month to 84.2 points from 83.7 points in April, adding to evidence that sentiment is again on the up in Germany, the world's biggest exporter.

The result was slightly worse than expected, however. Analysts surveyed by Dow Jones Newswires had expected the index to rise to 85 points. Economists see the index as a key leading indicator to gauge the future health of the economy. It had been falling steadily -- with occasional blips -- since June 2008 as sentiment firms plummeted due to the global financial crisis.

Tempering the optimism, however, was a sub-index showing that companies' view of the current situation in Germany dropped in May to 82.5 points, its lowest level ever. Rees said this sub-index showed that the German economy was unlikely to recover from the slump as quickly as it plunged into it.

Index



Business Balances



Source: Ifo Institute