German Industrial Orders Up: Massive Boost From Arms Spending
Submitted by Thomas Kolbe
Was this the turning point of the summer, a kind of summer-sun Merz-turnaround?
Latest figures from the Federal Statistical Office show a significant jump in industrial orders in Germany: The order volume of companies across all sectors rose by 2.5 percent in July compared with the previous month – the third consecutive increase.
These are good numbers for the Chancellor, who is desperately looking for supporting arguments for his political course ahead of the state elections in eastern Germany. The economic reporting of the past week was striking: Economic institutes are revising their growth forecasts for the current year upward. LBBW, for example, now expects growth of 0.7 percent for the current year, up from 0.5% previously.
Growth of 0.7% – given an officially reported government spending ratio of 52.5% and new borrowing of around 4% this year, this is a pitiful figure. It marks no turning point. The figure merely shows that the private sector remains on a path of contraction and will lose at least two to three percent in substance.
We are witnessing a statistical effect. Merz is inflating a debt-financed economic phantom, raising the question: How can real economic prosperity grow out of artificially created credit? If the world were really that simple, all of humanity could catapult itself into the economic stratosphere from one day to the next with a debt-financed Keynesian demand program.
But reality, unfortunately, does not correspond to the voodoo economics of long-faded theories.
Let us therefore return from the Keynesian dream world to the world of true economics.
Comparing incoming orders with the situation a year ago could give the impression that we have reached the peak of an economic boom: In July, incoming orders were 13 percent above the previous year's level – a fabulous figure, one the German economy may have last seen during the years of the post-war economic miracle. The July figure stands out so markedly that investment demand is pushing up the entire gross domestic product and more than compensating for the dramatically poor figures in the other sectors of the economy.
A brief classification: Retail sales were down 2.5% in real terms in July compared with the previous year. Hospitality revenue fell by more than 5% in real terms year-on-year. All in all, consumption stagnated in the first half of the year; only credit-financed government demand prevented a dramatically negative figure. On top of this, inflation, now at three percent, is slowly but surely eating holes into the purchasing power of private households.
But the beautiful appearance of the numbers is deceptive. Everything stands and falls with the large orders recorded statistically. Looking into the mechanics of the statisticians, one sector in particular catches the eye: other transport equipment. It contains, above all, orders for military goods. The statistics currently reflect the development of the military sector almost exclusively, because the private sector is not investing in major projects.
If this sector, which had exploded by a staggering 126.4% compared with the previous month, is excluded, industrial orders as a whole actually fell by 1.4% in July. That would hardly be a reason for celebration, including for the Chancellor, who seems to have gotten lost somewhere in the east on his campaign tour while searching for media-friendly crumbs.
Looking at individual items, the situation in German industry remains dramatic. In the automotive industry, it looks downright apocalyptic. German automakers had to absorb a 12.5% decline in orders compared with the previous month.
Free fall in Germany, the land of the automobile.
Foreign orders overall fell by 2.1% – customers outside the eurozone ordered even 10.1% fewer industrial goods. Domestic orders, by contrast, rose by 9.1% compared with June – another indication supporting the thesis that these may be the first larger waves generated by the German government's debt-financed special fund.
Friedrich Merz and his debt minister Lars Klingbeil are presenting us with an economic experiment that has been performed many times in the past and has always failed.
Once caught in the ideological degrowth trap, the pressure to act in the political boiler continues to rise. As a result of climate policy, dark clouds are gathering over the economic horizon, and political rescue efforts begin reflexively. Friedrich Merz is prescribing the debt-financed military Keynesianism described above as the extinguishing agent for the economic wildfire. Tanks, drones and howitzers are supposed, if the Chancellor has his way, to replace specialized machinery, motor vehicles, machine tools and industrial plants.
Welcome to the economic military yoke of the statist Merz.
But, like every form of interventionism, this policy will leave nothing behind but new mountains of debt, if not an entire Himalayas of debt.
And, as if to confirm this, statisticians reported at the beginning of the week that Germany's new borrowing had risen from €35 billion to €71 billion in the first half of the year.
Correctly calculated and expanded to include municipal debt as well as the special fund that will only become effective in terms of payments in the second half of the year, Germany's debt will increase by at least €180 billion this year. That corresponds to new borrowing of more than 4 percent of GDP. We are facing the disastrous legacy of the debt king Merz, who has sacrificed his country's creditworthiness in pursuit of his personal political goals.
Only economic illiterates regard debt-financed government consumption as economic prosperity.
The construction of the state economy has consequences.
Germany has been seized by a process of economic erosion. Total industrial production in Germany has lost around 15 percent of its volume since the best year, 2018 – a political scandal that to this day is successfully ignored by the relevant circles in the specialist press, the daily media and politics alike, if it is not simply dismissed as a figment of the imagination of malicious opponents.
The booming arms manufacturers, too, should not celebrate too early. The path of the booming sector is predetermined, and it points toward the same abysses toward which civilian industry is heading. The fog will lift the moment the flow of subsidies dries up as a result of the economic crisis in the country.
Then the abyss will become visible. Because at the toxic German location, with its high energy costs, excessive regulation and unfavorable political climate, industrial investment simply no longer pays off.
The flash in the pan of Merz-style military Keynesianism will not change this finding either.
* * *
About the author: Thomas Kolbe, a German graduate economist, has worked for over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination.