Until last week the consensus about the German economy was that is was the main engine of what had become called the Euro boom. Some were thinking that it might even pick up the pace on this.
For the whole year of 2017, this was an increase of 2.2% (calendar-adjusted: +2.5%),
This was driven by the PMI or Purchasing Managers Index business surveys from Markit which as I pointed out on the 3rd of January were extremely upbeat.
2017 was a record-breaking year for the German
manufacturing sector: the PMI posted an all-time
high in December, and the current 37-month
sequence of improving business conditions
surpassed the previous record set in the run up to
the financial crisis.
This was followed by the overall or Composite PMI rising to 59 in January which suggested this.
“If this level is maintained over February and March,
the PMI is indicating that first quarter GDP would rise
by approximately 1.0% quarter-on-quarter”
Actually that was for the overall Euro area which had a reading of 58,8. The catch has been that even this series has been dipping since as we now see this being reported.
The pace of growth in Germany’s private sector cooled at the end of the first quarter, with the services PMI retreating further from January’s recent peak to signal a loss of momentum in line with that seen in manufacturing.
This led to this being suggested.
it still promises to be a strong 2018 for the German economy – with IHS Markit forecasting GDP growth to pick up to 2.8%
Still upbeat but considerably more sanguine than the heady days of January. Then there was this to add into the mix.
However, unusually cold weather in March combined with continuing payback from January’s jump in activity has led to the construction PMI falling into contraction territory for the first time in over three years
Official Data on Production and Trade
The official data posted something of a warning last week.
In February 2018, production in industry was down by 1.6% from the previous month on a price, seasonally and working day adjusted basis according to provisional data of the Federal Statistical Office (Destatis)…….In February 2018, production in industry excluding energy and construction was down by 2.0%. Within industry, the production of capital goods decreased by 3.1% and the production of consumer goods by 1.5%. The production of intermediate goods showed a decrease by 0.7%. Energy production was up by 4.0% in February 2018 and the production in construction decreased by 2.2%.
As you can see the monthly fall was pretty widespread and only offset by a colder winter. Whilst this did show an annual increase of 2.6% that was a long way below the 6.3% that had been reported for January and December. So on this occasion the PMI surveys decline seems to have been backed by the official numbers as we await for the March numbers which if the relationship holds will show a further slowing on an annual basis.
Thrown into this mix is concern that the decline is related to fear over the rise in protectionism and possible trade wars.
If we move to this morning’s trade data it starts well but then hits trouble.
Germany exported goods to the value of 104.7 billion euros and imported goods to the value of 86.3 billion euros in February 2018. Based on provisional data, the Federal Statistical Office (Destatis) also reports that German exports increased by 2.4% and imports by 4.7% in February 2018 year on year. After calendar and seasonal adjustment, exports fell by 3.2% and imports by 1.3% compared with January 2018.
This may well be an issue going forwards if it is repeated as last year net exports boosted the German economy and added 0.8% to GDP ( Gross Domestic Product) growth.
On a monthly basis we saw this.
Exports-3.2% on the previous month (calendar and seasonally adjusted). Imports –1.3% on the previous month (calendar and seasonally adjusted).
Of course monthly trade figures are unreliable but this time around they do fit with the production data. The export figures look like they peaked at the end of 2017 from an adjusted ( seasonally and calendar) 111.5 billion Euros to 107.5 billion on that basis in February.
What are the monetary trends?
If we look at the Euro area in general then there are signs of a reduced rate of growth.
The annual growth rate of the narrower aggregate M1, which includes currency in circulation
and overnight deposits, decreased to 8.4% in February, from 8.8% in January.
The accompanying chart shows that this series peaked at just under 10% per annum last autumn. So that surge may have brought the recorded peaks in economic activity around the turn of the year but is not heading south. If we move to the broader measure we see this.
The annual growth rate of the broad monetary aggregate M3 decreased to 4.2% in February 2018, from
4.5% in January, averaging 4.4% in the three months up to February.
This had been over 5% last autumn and like its narrower counterpart has drifted lower. If you apply a broad money rule then one would expect a combination of lower inflation and growth which is awkward for a central bank trying to push inflation higher. If we move to credit then the impulse is fading for households and businesses.
The annual growth rate of adjusted loans to the private sector (i.e. adjusted for loan sales, securitisation
and notional cash pooling) decreased to 3.0% in February, compared with 3.3% in January.
This is more of a lagging than leading indicator of circumstances.
These are of course Euro area statistics rather than Germany but they do give us an idea of the overall state of play. A possible signal of issues closer to home are the ongoing travails of Deutsche Bank. There has been a bounce in the share price today in response to the new Chief Executive Officer or CEO as Sewing replaces Cryan but 11.8 Euros compares to over 17 Euros last May. Yet in the meantime the economy has been seeing a boom and added to that as I looked at late last month house price growth will have been boosting the asset book of the bank yet the underlying theme seems to come from Coldplay.
Oh no, what’s this?
A spider web and I’m caught in the middle
So I turned to run
And thought of all the stupid things I’d done
The heady days of the opening of 2018 have gone and in truth the business surveys did seem rather over excited as I pointed out on January 3rd.
This morning we saw official data on something that has proved fairly reliable as a leading indicator in the credit crunch era. From Destatis.
In November 2017, roughly 44.7 million persons resident in Germany were in employment according to provisional calculations of the Federal Statistical Office (Destatis). Compared with November 2016, the number of persons in employment increased by 617,000 or 1.4%.
The rise in employment has been pretty consistent over the past year signalling a “steady as she goes” rate of economic growth.
We can bring that more up to date.
In February 2018, roughly 44.3 million persons resident in Germany were in employment according to provisional calculations of the Federal Statistical Office (Destatis). Compared with February 2017, the number of persons in employment increased by 1.4% (+621,000 people).
Thus we see that it continues to suggest steady if not spectacular growth and bypasses the excitement at the turn of the year. Looking forwards we see that the monetary impulse is slowing which is consistent with the reduction in monthly QE to 30 billion Euros a month from the ECB. We then face the issue of how Germany will follow a good first quarter? At the moment a growth slow down seems likely just in time for the ECB to end QE! So it may well be a case of watch this space…..