German Ifo takes a dive in February

Wake-up call. Global events have finally reached German companies’ boardrooms. At least this is one conclusion of today’s Ifo reading. Germany’s most prominent leading indicator, the just released Ifo index, dropped to 105.7 in February, from 107.3 in January; the third decline in a row and the lowest reading since January 2015. Particularly expectations have taken another sharp hit from recent market turmoil, the adverse impact of low oil prices and renewed concerns about a slowing of the Chinese economy, dropping to 98.8 in February, from 102.3 in January. Remarkably, the current assessment component increased to 112.9, from 112.5 in January, indicating that it is fear rather than an already felt decline which is troubling German companies. Earlier this morning, the German statistical office had released details of GDP growth in the final quarter of 2015. The data showed that growth was mainly driven by consumption, more from the public than the private sector, and the construction sector. Net exports had been a severe drag on growth, with (QoQ) exports actually dropping for the first time since 2012. Although looking positive at first glance, these GDP data are already telling a slightly less optimistic story about the German economy. Despite the strong labour market, low inflation, low oil prices and higher wages, private consumption growth slowed down in the final quarter. Back to today’s Ifo index. As so often in the past, even though they probably the most internationally-oriented companies in the world, it took German companies a while to realize that the world outside of Germany has changed. For a while, the cooling of the Chinese economy and the slowdown in emerging markets was more than offset by strong demand from the US and a rebound of activity in some Eurozone countries. Currently, however, as low oil prices are denting US growth prospects, the US economy could no longer be the strong safety net for German exports and industry that it was in 2015. As paradox as it might sound, low oil prices currently seem to do more harm than good to the German economy. All in all, today’s Ifo index sends a strong wake-up call to the German economy: the easy and carefree life on the island of happiness seems to come to an end. For the time being, solid domestic activity should avoid any real negative surprised. Growth on the back of the public sector, consumption and construction activity might shield the German economy from external headwinds, but is clearly not a strategy for sustainable growth in the medium run. Just ask the majority of Germany’s Eurozone peers.

Het heilige geloof

De Duitse kerken klagen over te weinig instroom. Van de minder dan 60 procent Duitsers die in een kerkregister zijn opgenomen, gaat slechts een fractie vaker dan alleen met Kerstmis en Pasen naar de kerk. Net als in veel andere landen is het belijden van het christelijke geloof tanende. Maar een ander geloof heeft nog altijd veel aanhangers in Duitsland. En het aantal dienaren groeit: het geloof in het recht.

Duitsland heeft anderhalf keer zo veel advocaten per inwoner als België, dubbel zo veel als Nederland en Zwitserland en drie keer zo veel als het eveneens Duitstalige Oostenrijk. En het aantal advocaten stijgt nog altijd. In Duitsland vallen op dit moment veel heilige huisjes, het vertrouwen in de autoindustrie en in het ‘schaffen’ van de immigratiegolf, maar het vertrouwen in het recht zal als laatste vallen.

In de korte tijd dat ik weer in mijn vaderland woon, heb ik onvrijwillig meerdere ervaringen met advocaten opgedaan. De plaats waar ik woon staat bekend om haar hoge advocatendichtheid. De stad durft nauwelijks een nieuw beleid te voeren omdat ze juridische procedures vreest. Speel- en sportpleinen zijn door klachten een groot deel van de dag verplicht dicht: de buurtbewoners ervaren geluidsoverlast. Heb je een probleem met je buurman, je vrouw of desnoods je hond? Voer dan zeker geen goed gesprek en zoek ook niet naar pragmatische oplossingen waar iedereen mee kan leven. Nee, haal er onmiddellijk een advocaat bij.

In praatprogramma’s wordt bij elke show een professor in het recht uitgenodigd om feiten te beoordelen en te duiden. De instantie van het allerlaatste woord in Duitsland is niet de regering, het parlement of Bundeskanzlerin Angela Merkel, maar het Constitutionele Hof in Karlsruhe. Politieke en economische kwesties worden door burgers of belangengroepen, ook na eenduidige beslissingen door de politiek, aan de rode rechters van het Bundesverfassungsgericht voorgelegd.

Dat patroon en de behoefde om koste wat kost gelijk te halen voor de rechter wordt deze week weer ad absurdum geëtaleerd. De rode rechters van Karlsruhe buigen zich over het OMT, het obligatieopkoopprogramma van de Europese Centrale Bank. Nee, niet het huidige programma van grootschalige opkopen van staatsobligaties - QE voor de kenners - maar het programma dat nooit werd uitgerold. Dat alleen op papier bestond.

Maar dat is niet alles. Het is ook het programma dat het Europees Hof als wetmatig beschouwt. Jammer dat veel Duitsers niet de humor hebben om het satirische element in dat toneelstuk te zien.

En zo kijkt Duitsland deze week weer doodserieus naar Karlsruhe. Wellicht ziet het Hof met het wankele Europese huis en de verzwakking van de Europese samenwerking nieuwe kansen? De kans is klein. Uiteindelijk moet Karlsruhe (en het Duitse volk) aanvaarden dat het Europese recht boven het Duitse staat. Een schok voor veel Duitsers, want na het geloof in de betrouwbaarheid van de Duitse auto valt daarmee het laatste heilige geloof.

Deze column verscheen vandaag in het Belgische dagblad "De Tijd".

 

 

German growth, new risks and Bayern Munich

Now it’s confirmed. The German economy ended the year with a decent growth performance in the final quarter. Despite increasing external headwinds, the German economy grew by 0.3%. This is slightly less than the first estimate for the annual growth number had suggested and probably the result of an entire batch of disappointing hard December data. Compared with the last quarter of 2014, the economy grew by 2.1%. Working-day adjusted, 4Q growth was 1.3% YoY. Details of 4Q GDP will only be published at the end of the month but available monthly indicators and the statistical office’s statement suggest that domestic demand was the main growth driver. Government consumption, a bit of private consumption and another surge in the construction sector supported growth, while at the same time net exports were a drag on growth. Without any doubt, the performance of the German economy since 2009 has been impressive. In 27 quarters, the economy only shrank three times. Moreover, over this period, the economy moved from a purely export-driven model towards a much more balanced model with domestic factors currently shielding the economy against external headwinds. Sadly, as impressive this well-known growth story might be, against the background of latest financial market turmoil, today’s German GDP data almost look like a relict of the good old days. They will do little to nothing to calm markets. Looking ahead, the year 2016 could be more challenging for the German economy than many had expected. Not only due to the refugee crisis and increasing political uncertainty but mainly due to increasing external headwinds. On top of the well-known risk factor like slowing China and emerging markets or a still struggling Eurozone, low oil prices and the possible weakness of the US economy could give the German economy a hard time. In particular, any slowdown of the US economy could turn out to be a double whammy for Germany. The direct impact through weaker demand from last year’s most important trading partner and the indirect impact through a stronger euro are in our view currently the biggest risks for the German economy. To some extent, there are similarities between Germany’s showcase soccer team Bayern Munich and the Eurozone’s showcase economy. At first glance, both performances look impressive and flawless. At second glance, however, weaknesses have emerged recently. These weaknesses have clearly increased the risk for both Bayern Munich and the German economy to surprisingly be knocked off their respective pedestals in the coming weeks and months. Carsten Brzeski

German industry disappoints in December

German industrial production dropped by a depressing 1.2% MoM in December, putting an end to a rather disappointing year for the German industry. This was the sharpest monthly drop since August 2014. On the year, industrial production was down by 2.2%. Looking at the details, there was only one bright spot in the production of intermediate goods (+0.8% MoM). All other sectors saw a decline in production. Parts of this December drop can be explained by the timing of the Christmas vacation which put parts of the production process on halt for almost two weeks in December. However, the fact that industrial production in the final quarter of the year was almost 1% lower than in the third quarter illustrates the general weakness of Germany’s former growth engine. At the same time, exports and imports both dropped by 1.6% MoM in December, narrowing the non-seasonally adjusted trade surplus to 18.8bn, from 20.5bn euro in November. December trade data show that German exporters have also started to suffer weaker foreign demand. Nevertheless, contrary to industrial production, the trade performance over the entire year 2015 was still positive. For most parts of the year, German exports benefitted from a weaker euro. Particularly, exports to the US have benefitted from the sharp depreciation of the euro since 2014. As a consequence, the US has become Germany’s most important trading partner in 2015, taking this number one spot from France. In this regard, renewed fears of a Chinese hard landing should not push the German economy into severe problems. Germany currently exports almost twice as much to the US as to China. Interestingly, help to offset weaker demand from emerging economies did not only come from overseas but also from next door. Exports to the Netherlands also increased strongly in 2015, making the Netherlands Germany’s third most important trading partners, taking both exports and imports together. All in all, this morning’s data were a painful reminder that not all is hunky dory in the Eurozone’s largest economy. In fact, the German “Wirtschaftswunder” has only some domestic magic left. With the strong labour market, low inflation, low interest rates and higher wages, consumption is strong and, in addition, services and the construction sector have become important growth drivers. The German industry, however, is still standing on shaky grounds. While the industry had been able to stomach the cooling of the Chinese economy, the slowdown of emerging markets, the euro crisis and geopolitical risks, it now seems as if extremely low oil prices and the slowdown of the US economy are simply two risks too much for the industry. Particularly, the possible US slowdown could turn out to be the biggest risk for the German economy as it could weaken the country’s most important export driver these days. Moreover, as capacity utilization in the industry is close to historical averages, an imminent investment boost also seems far from certain. Finally, last week’s new orders data combined with dropped product expectations, increased inventories and narrowed order books all do not bode well for industrial production in the coming months.