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Germany’s Export Debacle
Wolf Richter www.testosteronepit.com
Christine Lagarde, managing director of the IMF, told the South African Business Day yesterday that the Eurozone is likely to avoid a recession in 2012, an inexplicable statement in light of some ugly trends. Germany, the economic superstar with unemployment at a 20-year low and exports at an all-time high, produces 34% of the Eurozone’s GDP—and it has smacked into a wall.
Signs have been accumulating. But on Tuesday, Deutsche Bank published a report that lent more weight to them: Germany’s economy would shrink during the first two quarters of 2012. The recession has arrived. Uncertainty around the debt crisis would impact the willingness of companies to make investments. Budget cuts in Eurozone countries would hit exports. Unemployment would tick up a notch to 7.25%. However, political progress in overcoming the crisis would allow exports, and thus the German economy, to recover in the second half. For all of 2012, Deutsche Bank predicted essentially stagnation.
And manufacturing revenues fell by 1.1% in November from October, though they’re still positive for the year, the Federal Statistical Office announced today. More ominously, export orders have been crashing for months—a harbinger of sharply declining future exports. In 2011, exports reached a record of €1.07 trillion. In a country whose GDP is only €2.37 trillion! But orders from non-Eurozone countries plummeted by 10.3% in November.
The debt crisis has been slamming one peripheral Eurozone country after another. Greece is teetering after five years of recession. Troika inspectors are on their way to demand yet more cuts. And the Prime Minister threatened everybody with the nuclear option. For that whole mess, read.... Greece’s Extortion Racket Is Maxed Out.
But now the core of the Eurozone is getting slammed.
Siemens shed doubts on its outlook. The forecast made in November is "very ambitious," cautioned CFO Joe Kaeser. "Headwinds have become rougher." In November, the technology conglomerate with $96 billion in revenues had announced a growth target of 5% for 2012. That’s out the window. Kaeser blamed uncertainties caused by the debt crisis and criticized the "hesitant" political steps taken to solve it. The whole sector would be hit by a reduction in industrial demand in the first half, though he still expected demand to improve in the second half (that second-half optimism is reminiscent of the one displayed by Ford, GM, and others in early 2008).
There were company-specific clouds as well. Delays and uncertainties at large North Sea wind-power projects would darken the result for the first quarter. And he warned of more restructuring expenses at Nokia Siemens Networks. Siemens had desperately tried to sell it, but since no willing buyers emerged, it would have to lay off 17,000 employees, about 20% of NSN’s workforce.
And the European auto market is going to hit the skids in 2012, according to Carlos Ghosn, CEO of Renault and Nissan. Speaking at the Detroit auto show, he predicted that auto sales would drop 3% in Europe. The first quarter would be particularly lousy. How do you prepare for this? "You have to utilize your inventory, limit production, and pay attention to costs. And for the rest, pray," he advised.
It gets worse. Philips, the Dutch maker of electronics and lighting products, blamed weakness in Europe for declining sales in its healthcare equipment division—previously considered immune to the debt-crisis. The problems also pressured prices in its lighting division. The company had already announced that it would cut 4,500 jobs.
German exporters are getting hit from two sides: trouble in the Eurozone and slowing demand in China—its imports, up 22.1% in November year over year, were up a disappointing 11.8% in December. Suddenly, German executives are keeping a hopeful eye on Chinese monetary policy.
They’ve been through this before. During the financial crisis, German export orders fell off a cliff, and GDP printed the worst two quarters in the history of the Federal Republic. But then QEx-inflated growth elsewhere, particularly in China, drove German exports to a record. And by 2011, the media were gloating over the "German success Recipe." For its unique aspects and for just how premature all the gloating was, read.... “German Success Recipe” or Blip?
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Christine Lagarde, managing administrator of the IMF, told the South African Business Day bygone that the Eurozone is acceptable to abstain a recession in 2012, an baffling account in ablaze of some animal trends. Germany, the bread-and-butter superstar with unemployment at a 20-year low and exports at an best high, produces 34% of the Eurozone’s GDP—and it has smacked into a wall.
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WiHa makes good stuff, bought a special tool to adjust the sight on a glock 17.
2011 was a record year for Germany but nothing goes up for ever.
Living in Germany during 2011 was somehow funny. Everyday the newspapers and TV reported in bold letters about the economic crisis all around the world but it did not materialize in Germany. In the opposite people have since a long time again a choice where they want to be employed. There are many open positions for skilled persons. Young professionals from Spain, Greece and Italy are attracted in steadily increasing numbers by these job opportunities and move to Germany.
At present things look still very good for the ordinary German. Youth unemployment and unemployment in general is at a 20 year low.
The characteristic of the future is the uncertainity but thats life. So nobody in Germany expects that 2012 is again a record breaking year beating 2011. But on the other side you can hardly find somebody who predicts a real strong downturn for 2012. Given the case that economically nothing dramatically happens in 2012 then it is quite probable that Germany is going to enjoy a quite good year 2012.
So "export debacle" and "smacking in the wall" seems a bit far fetched in my opinion. I believe, that 2012 is going to be a rather good year but beyond 2012 everything is possible. Simply because of the fact that the economic crisis which has befallen huge parts of the mature economies could possibly spread to the BRICS thus slowing the business in Germany substantially. But its not yet sure that this is going to happen, so there is reason for optimism in Germany and other well managed European countries.
You use the euro as a currencie and you think the State of Germany is well managed?
@Mr Lennon Hendrix - Hope you don't mind me jumping on the bandwagon here with you.
@supermaxedout - You said, "Young professionals from Spain, Greece and Italy are attracted in steadily increasing numbers by these job opportunities and move to Germany." ROFL! Well yeah, their countries' job markets have turned to shit, so of course they are moving to where there is at least prospect of work. That doesn't automatically translate to a burgeoning job market in Germany though does it? In fact, with the open boarders policy, I would argue that a migration crisis might actually be in the cards. With the relative youth of the failed Euro pact, I think it's safe to say that the full range of unintended consequences has not yet been fully realized.
I think, you are missing the point. The number of unemployed in Germany is at a 20-year low. There are still a lot of open positions that cannot be filled because the remaining unemployed lack the required skills. One third of the unemployed belongs to the category of long-term unemployed, 43% of all unemployed people have not learned any job. Open entry positions for young persons cannot be filled because many of them lack basic skills. So, many companies in Germany look for workers abroad. These workers do not really replace German workers because there are hardly any skilled unemployed persons in Germany. Therefore, I doubt that there will be any large-scale public resentment against these people. Moreover, due to deteriorating demographics almost everywhere in Europe, this migration will give the German (and, similarly, Dutch, Skandinavian etc.) economy a significant boost and will improve its competitive position against southern Europe even more. Of course, this development can reverse and workers can return home as we have seen with many Poles in Ireland and the UK. But the longer this tendency continues the less likely a reversal becomes. Young people come from Spain or Greece to Germany, they start a job, pursue their careers. They found a family and settle down. Children soon will speak better German then the native language of their parents etc. And this is happening: I personally know serveral Spanish people who moved to Germany. Anecdotal evidence states that the number of German courses in Spain (and correspondingly the number of participants) exploded in recent months. Therefore, this development has the potential to increase the divergence in competitiveness within Europe even more and can settle this issue for decades to come. In Germany, the same happened after the reunification when many skilled workers left the east for the west. Some regions haven't recovered until today and the turn-around in the east has only recently been seen. Therefore, I wouldn't underestimate the power of the current dynamic in shaping Europe for many years to come.
I concur. IIRC only in 2011 over 150K people from Spain and somewhere else went over to Germany to find work. All together it could be well over 300K of additional foreigners. All is good while the economy is good. If it gets bad, well then Germany might introduce temporary measures similar to those that Spain introduced for Bulgarians last year. That's only fair, but it won't be welcomed by the EU and it could spread to other countries within a quarter or two.
Bullish! Decoupling! Never gonna touch us here! What do we care!
http://www.youtube.com/watch?v=9SfyObUd5e8
All the corporations and governments hoping for more debt spending to fix the debt crisis and unemployment.
Ooops.
But hey, Jamie Dimon and all the other Wall Street stuffed shirts and skirts telling us that the economy is improving and to "buy equities".
Endless consumption and growth is not possible.