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“There’s no Reason to Panic” about German Miracle Economy
Wolf Richter www.wolfstreet.com www.amazon.com/author/wolfrichter
Germany, the largest economy in Europe, the miracle economy that is being held up as example of how an economy should be run, and the all-powerful engine that is supposed to pull the Eurozone out of its deep mire, is sinking into a mire of its own.
When second quarter GDP “unexpectedly” – a word now attached to much of the economic data coming out of that country – declined 0.2% from the first quarter, it wasn’t taken seriously. It was a blip, supposedly. The third quarter would more than make up for it, by some miracle of German efficiency or industriousness, presumably. I called it, “German Economy Swoons.”
Shoes have been dropping ever since. Yesterday, it was reported that demand for German goods dropped 5.7%, the worst monthly drop since 2009. Foreign orders plunged 8.4%, with orders from the Eurozone down 5.7%, but orders from all other countries – and that includes Germany’s two largest and all-important export destination outside the Eurozone, China and the US – down a fabulous 9.9% (made me wonder what the statisticians did to keep it out of the double digits, which would have been utterly embarrassing).
The problem with orders is that they lead export-addicted German GDP: if orders drop, so does GDP, but with a quarter lag. And orders have taken a decided turn south [This Chart Shows How Plunging German Factory Orders Sink the Economy].
Today, another shoe dropped. Industrial production fell 4.0% in August on a monthly basis and 3.0% year over year, after a rise of 1.6% in July, seasonally and working-day adjusted. The worst monthly drop since January 2009.
That these comparisons to January 2009 are suddenly reappearing is unnerving: the first quarter that year, the economy fell off a cliff, with GDP plummeting 4.1% from the prior quarter. No German industrialist will ever forgot those months when orders and exports simply dried up.
The rallying cry this time around? “There is no reason to panic,” said Andreas Rees, chief German economist at UniCredit MIB.
Energy, which has been on a long-term decline, rose for a change by 0.3%. For the rest, it was dreary: production of consumer goods fell by 0.4% and intermediate goods by 1.9%. Construction was down 2.0%. And production of capital goods, a critical indicator of business investment, plunged 8.8%.
Average production in July and August was 0.7% lower than the average in the second quarter – and that second quarter was that infamous one when the German miracle economy had “unexpectedly” shrunk by 0.2%.
All hopes are now on September. It would have to pull Germany out of its deepening malaise. It would have to be powerful. It would have to crank hard to prevent the economy in the third quarter from continuing its decline. But September already doesn’t look that hot. Markit’s Retail PMI, which surveys 400 retailers about month-to-month changes in retail sales, plummeted to 47.1 (below 50 = contraction), to the worst level since April 2010, unnervingly close to that terrible year of 2009.
“Signaling an accelerated contraction in German retail sales,” is how the report phrased it. Germans are closing their wallets: 39% of the retailers reported year-over-year sales declines. And the mood of German consumers, dour perhaps by nature but which recently had been riding on a wave of near-euphoria, is curdling once again.
With sales falling, retailers did what retailers do: they lowered their purchasing activity in September, after already having cut their orders in August. With “sharply declining” gross margins, retailer profits continued to sag for the 46th month in a row. Yet they’ve increased hiring, in the hope – because that’s all that’s left – things would turn around soon.
The image that emerges with increasing clarity is ugly for the Eurozone. Germany isn’t going to pull out anything. The miracle economy turns out to be an economy like all others where consumers are taxed until they suffocate, where economically important trade partners such as France and China are teetering, and where additional problems, such as the sanctions against Russia, make life miserable for exporters.
And so in the third quarter, Germany’s economy might decline once again. It would be the second quarter in a row of declining GDP. It wouldn’t be an official recession (which takes other data points into account as well), but it would qualify as a technical recession. And then it would take a true Q4 miracle – of which there aren’t any on the horizon just yet – to pull out the year.
The German stock market, which for years soared from record to record regardless of any underlying problems, has rolled over, down 9.6% since its peak earlier this year. And now it even hit the over-hyped IPO market. This shouldn’t have happened. Where is the euphoria? Read… IPO Mania Collapses in Germany
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Viva La Germany.
When the last German agrees to a full blown QE and ECB government bond buying or Eurobonds, then the slide will magically stop.
ECB is a toothless tiger and is trying to take a bite out of Germany.
There are a lot of stupid post by Wolf Richter but that one will make it in the top 3. Just a mere repeating of clueless comments elsewhere. Factory orders down big time in August? Sure, in August has been the commulation of the Ukraine conflict and German-Russian business contact almost dryed out, but of course our smart commentator seems to haven forgotten about that. Retail sale down in August, same thing, no mention that this has to do a lot with that conflict. And of course manufacturing is down big time this time in August, since the holiday season started late in Juli this year, so a lot of prduction shifted to Juli and September 2014, 100.000 cars were produced less than August 2014. And that are just a few point where Richter is just clueless in what he writes.
Germany is in a difficult postion right now, Europes growth extremly low, the US Russsian conflict over Ukraine, a slowdown in Chinese and east Asian growth, and armed conflicts in many corners of this globe. And still she is doing pretty well for that. Growth Q2 - 0,2, Q3 maybe another -0,2 after + 0,7 on Q1 ? Okay, if like you may call that a recession. It will be pretty short one with a EURUSD at 1,26 now, this is like a booster rocket for the German´s export industry.
Global growth is slowing and the free FED ride which has allowed Americans to restock on Beemers and Benz is coming to an end. Lower EUR doesn't matter much when Americans are leveraged up and margin calls are coming.
Germany has a good economy but is not immune when all around them deflation is showing up.
Germany's retail sales are plunging as consumers slam their wallets and start saving to pay the looming heating bills they face this winter....a winter of Russian discontent that has anyone paying attention very nervous.
Thank you, Uncle Sam, you sold out moron.
"... in order to consolidate the neoliberal European economic empire, German oligarchs promote another 'haircut' of multiple dimensions across Europe. They proceed into a violent cut of salaries and pensions, trying to equalize them in a first phase with those of countries of the former Eastern bloc, and disolving the welfare state. Federalism means however, that the same policies will be applied totally, definately and very soon, also against German citizens and workers."
http://failedevolution.blogspot.gr/2013/04/a-scenario-nightmare-for-futu...
Happy Oktoberfest Germany !
going down !! growth was then; this is now. No growth. get used to it. every time you short an S&P500 rally you make money. It's over; it's so over, even normal people are beginning to notice that it's over. As Wolf says, "Where's the Euphoria". Whoops.
Zalando is another Boo.com
The DAX was pumped up by the Japanese central bank like a 280kg Sumo wrestler on top of a Yokohama hooker. Now the viagra has worn off.
The DAX is actually a total return index, so if you strip out the dividends, it is still below the peak reached in March 2000...
The major European indices, including the UK, began declining mid June to early July, and are now down about 10 to 15%. Same with most Emerging Markets, and the U.S. Russell 2000. So, the last (girlie) men standing are the SPX and the NDX, which are now looking to "correct".
I think that the Euro markets have it right: no growth/outright recession.
It's time for the U.S. majors to get with the program, and for me to finally make some dough on the short side.
https://www.youtube.com/watch?v=1NvgLkuEtkA
All those unions, high taxes, and high regulations are finally catching up to them. !!
- Any GOP politician
Yeah USA the bastion of unfettered Capitalism... Take out the previous 12 years of USD devaluation and redraw US indices..