Oliver Rakau
@OliverRakau
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Chief Germany Economist and ECB commentator @OxfordEconomics . All views very much my own.
Frankfurt am Main, Deutschland
Joined July 2015
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The backlog of the German auto industry has continued to rise strongly in November despite a last minute rebound in production. Backlogs are now about twice what they were pre-pandemic. Just waiting for those semiconductors...
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The weakness is spreading. German manufacturing employment has been falling 3 out of past 5 months. And it isn't "just" the energy-intensive sectors anymore. 17 out of 24 major NACE sectors are contracting. But strength in a few sectors limits overall fall to 0.1% over past 3M.
Ende August 2023 waren voraussichtlich knapp 5,6 Millionen Personen im Verarbeitenden Gewerbe tätig. Die
#Besch
äftigtenzahl stieg gegenüber August 2022 um 54 400 oder 1,0 %. Im Vergleich zum Vormonat Juli 2023 stieg sie um 12 200 oder 0,2 %. Mehr Infos:
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German trucking activity continued to nosedive last week. We are now at levels last seen in the pandemic. Half-way through Q3 data is consistent with a quarterly GDP drop of ~1%. Trucking overstated GDP weakness recently, but a negative Q3 GDP print seems increasingly inevitable.
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Okay, so what happened? German factory orders plunged the most outside the pandemic in March. Part of the 11% m/m drop was due to volatile big ticket orders but even excl. those this was the largest non-pandemic fall since the GFC at -8% and uniform across sectors. 1/
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Draft law for new & scaled-up German rescue fund: €600bn of which 400bn for guarantees, 100bn for equity stakes, 100bn for KfW loans. Supplementary budget a massive €156bn. And the unlimited liquidity support via kfw remains in place. WOW.
EXKLUSIV: So sieht der neue
#Corona
-Rettungsschirm laut Gesetzesentwurf aus.
Insgesamt 600 Mrd Euro:
400 Mrd Garantien zur Absicherung von Unternehmens-Verbindlichkeiten
100 Mrd für direkte Unternehmensbeteiligungen
100 Mrd an Kredithilfen für KfW
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There's a lot of 2nd or even 3rd tier data out for Germany today and none of it looks good. 1/
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You couldn't have made this up. After the latest surge in TLTRO volumes the ECB's balance sheet increase since the start of the year is on par with the Fed's efforts, while the differing composition of the balance sheet rise reflects Europe's much more bank based financial system
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Monetary policy tightening working its way to an economy near you. Incredibly weak loan data for the eurozone in December. Think this undermines the "no recession" arguments.
How did euro area bank lending and money supply evolve in December? How do they compare with November’s figures? Find out more in the press release
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The Greek tourism season appears to run extra long this year as flight traffic now exceeds (!) its 2019 levels by over 10%. Pent-up vacation demand seems to be a real thing.
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Probably the most important slide in Lane's speech today. Forward-looking wage tracker points to sharply slowing wages in 2025.
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German fin min announces UNLIMITED credit program via state owned KfW for struggling firms on any size. No surprise really, but good to hear it. Similar approach to 2008/09.
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Maybe the most interesting bit in today's German inflation details was the continued and historically unprecedented surge in insurance costs esp. in car insurances.
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German producer price deflation is gaining breadth. Over 40% out of 99 basket items with falling prices atm. Disinflation is increasingly spreading from energy and very commodity heavy intermediate goods sectors into downstream sectors.
Die
#Erzeugerpreise
gewerblicher Produkte waren im Mai 2023 um 1,0 % höher als im Mai 2022. Im Vorjahresvergleich ist dies der geringste Anstieg seit Januar 2021 (+0,9 %). Gegenüber dem Vormonat sanken die Erzeugerpreise um 1,4 %. Mehr dazu:
#Preise
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Outright deflation is spreading within the German PPI basket. Nearly half the categories see falling prices (m/m), by far the highest since the GFC. Meanwhile, the share of categories with large price gains is back to normal. Not sure why consensus CPI for next year isn't lower.
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Seeing the first batch of news articles on the outlook for Christmas shopping season I updated the below. It's early in the month, but so far Google Trends data points to pretty bleak sales prospects for Black Friday and Christmas.
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Industrial gas use in Germany has continued to approach historic norms in recent weeks. We are less than 10% down from 2018/19 from as low as -30%. this points to continued recovery in chemical / energy intensive production. Still not really being acknowledged in policy circles.
Wer sich die erodierende Wettbewerbsfähigkeit der
#Chemieindustrie
anguckt, muss sehen:
-wie fatal der Atomausstieg war
-wie Energiepreise über Arbeit und Wohlstand entscheiden
-und man sich nicht leisten kann, Energiepolitik nach parteipolitischen Kompass zu machen
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Ouch. German trucking activity plummeted in 1st week of December. Something funny may be going on, so for now wld say overstates probable GDP Q4 decline. But even if half true, carry over into Q1 pretty terrible making +ve Q1 GDP an uphill battle.
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German headline inflation likely undershot 2% in August based on state level data. Maybe 1.8%. I guess there might be a rate cut in September....
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FWIW, this account posts all the price changes of one of Germany's major food retailer's own brand. This January the mean has been -1.9% so far (median -7%). In January last year it was +15.8% and +14%, respectively. 1.5 weeks to go to the January flash CPI...
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German finmin Scholz on TV right now. Very strong endorsement of ESM saying it was build “exactly for such a situation as now”. Making argument that ESM loans have many features of coronabonds. Doesn’t sound like much room for manoeuvre. So some form of “new” ESM loan most likely
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Great work by our European team on fiscal responses across largest 12 EU countries. We see them as a solid initial fiscal response dominated by sizable loan guarantees. But packages are in dire need of a strong follow-up with higher spending/income support
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I am so relieved that some things don’t even change, when a pandemic strangles societies and economies: Hans-Werner Sinn is out with a new oped on target2 balances
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Interesting what you can find in the depth of
@destatis
's data vaults. Germany's trade surplus in EVs is growing quite strongly and the deficit with China in EVs has actually narrowed a bit in recent months. Volatile series, but still...
Jeder vierte 2023 aus Deutschland exportierte Neuwagen war ein
#Elektroauto
. Insgesamt wurden 58 % mehr E-Autos exportiert als im Jahr 2022. Mehr zu Außenhandel, Umsätzen und Produktion von E-Autos:
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Latest update on German trucking activity kills hopes that weather was a key reason for the drop in early December. Q4 on track for largest contraction since GFC & pandemic. This data is REALLY bad even if seasonal oddities may obscure Dec data. Late ships taking toll already?
Well, German trucking data is still ouch. Some days last week showed more robust activity, but last week as a whole barely saw a recovery. Weather likely played a role, but lacklustre catch-up signals that underlying weakness also plays a role. Dec IP likely to go down markedly.
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German car production fell some 30% m/m in March due to missing cables from Ukraine. Still a 8%-ish q/q rise in Q1 given weak H2'21. But even assuming that the drop in the wider automotive sector was half as big that is a 2% hit to headline industrial production in March.
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Looks like solid disinflationary report. Based on state data German headline CPI rose to 3.6-3.7% in Dec. ~in line with consensus. Energy base effects lifted by ~0.6ppts. Importantly, core looks to have dropped to 3.4% from 3.8%. If true, core momentum stayed <2% ann.
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Stick wages? Eurozone wages slowed to 3.6% in September according to the Indeed wage tracker data. Decent correlation with negotiated wages and hourly wage costs. The ECB assumes compensation per employee to rise 4.3% next year. Colour me sceptical.
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Germany's massive fiscal surplus of 1.4% of GDP in 2019 was nicely distributed across all levels of gov leaving no good excuse to not provide at least a little bit more stimulus than currently budgeted. But Berlin is busy finding the next Merkel & black-zero is still sacrosanct.
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German headline inflation likely slowed more than expected in Dec. State data points to 8.6% so far after 10% in Nov. The one-off payment from the gas price brake & lower petrol, diesel & heating oil prices drove down energy prices by ~10% m/m. Core was up a tad maybe 5.2% (5.0%)
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Does German trade data show first signs of import substitution for energy/gas intensive products? Maybe... Chemical imports have outpaced domestic production in the last 2-3 months with the latter having plummeted to by far the lowest level since GFC/pandemic. 1/
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The wage deal in the German chemical industry in perspective:
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Good news for the ECB. The February Indeed wage tracker slowed fairly sharply to 3.7% after two months of readings closer to 4%.
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The most sophisticated way of extracting CPI implications from today's ESI details continues to point to core inflation momentum easing towards 2% by year-end.
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Backlogs in German auto sector coming down fast now, while orders are contracting ~10% y/y. Sector won't be able to offset production cuts in energy-intensive sectors for much long.
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Based on state level data German headline CPI may have risen to 6.3-6.4% in June on base effects from last year's subsidised public transport. But 9 out of 12 inflation categories were disinflationary...
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German per capita GDP just went up ~1.5% after new census results lower population estimate by 1.4m.
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The German government agreed an additional and massive fiscal stimulus program tonight worth €130bn or 4% of GDP extending Germany's lead over the fiscal response in most other European countries. 1/n
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Some numbers to underscore the likely hit to supply chains from all of this... With global supply already strained will be hard to (quickly) replace Russian and Ukrainian products.
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Eurozone wages ticked up to 3.9% y/y in Dec based on the latest Indeed wage tracker data. The sticky wage gains suggested by that will likely bolster the hawks in January. But remember, the ECB's own wage forecast is at 4.6% for 2024... We need (controlled) catch-up wage gains
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Uncertainty up. Confidence down. Real incomes down. Foreign demand down. Supply bottlenecks worsening. All we are now missing is a rate hike I gather?
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I am not sure people appreciate just how much German wage gains have been driven by (policy induced) bonus payments. Excl. bonuses, negotiated wages are up 2.5-3%, identical to the pre-pandemic average. And even the lift from bonuses may now be fading judging by Nov. data.
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Eurozone negotiated wages not showing anything of interest yet. Country data up to November.
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Today, the ECB published a nice piece on how elevated profit margins facilitated labour hoarding (). My chart below says the quiet part out loud after today's GDP details showed a drop in profits: There are clear downside risks to the labour market.
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German labour market runs on fumes. Only services employment intentions still positive. Hard to see the consumer rebound next year that most public forecasters rely on even before taking account of the recent constitutional court decision that puts in question the capex outlook.
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The below FT article makes a big deal out of the IG metal's 4.5% wage demand citing high inflation feeding worries of wage-inflation spiral. May happen, sure, but a quick & dirty calculation shows, demands averaged close to 6% pre-pandemic with results below 3%. Calm down people.
1/2 Appreciate there are a lot of concerns about inflation right now and the risk of a wage-price spiral, but it’s worth remembering that for decades now Germany’s economic competitiveness has come at workers’ expense…
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We knew that German negotiated wages are unlikely to pick-up in the early stages of 2022 given the timing of the negotiations. Still noteworthy that today's preliminary wage data for January 2022 shows no improvement. More content for the ECB to discuss.
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I am not too excited about that jump in German factory orders. Excluding big ticket orders the rise is half as large & the level is still below the recessionary 2018/19 levels. A jump in automotive orders played a big role but more timely VDA figures & ifo point to further falls
German Factory Orders (M/M) May: 6.4% (exp 1.0%; prevR 0.2%)
- German Factory Orders WDA (Y/Y) May: -4.3% (exp -9.7%; prevR -9.3%)
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The Q1 deflator split shows exactly what the ECB wants to see: slowing/falling profits absorb rising wages.
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EC's updated macro forecasts see eurozone output gap closing next year. I guess no further comment needed...
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To no one's surprise, eurozone negotiated wage growth slowed sharply in Q2 to 2.1% (had missed it y'day) after surge in Q1 (2.8%) due to one-off payments in DE. A pick-up in Q3 is likely looking at July data with less impact by one-offs. But even that wld leave levels subdued.
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Great analysis by ECB suggesting that most of the rise in HH savings in H1 was forced by lockdowns rather than precautionary considerations.
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A bit less polemic, if the Indeed wage tracker retains its close correlation with official wage data, then the ECB dragging its feet may well come to haunt the council.
So we are now at 3% for the indeed wage tracker in the eurozone as of April. What exactly are we waiting for?
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Huge backlogs among German and European capital goods producers were key in sustaining the resilience of European industry. No more judging by the ifo details...
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I wonder what would happen if all the brain power wasted on the Target2 debate in Germany was spent on tackling the underlying causes at home and abroad.
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Obviously super limited data for August, but that labour market resilience may well be over in Germany and the rise in unemployment over the past months could garner pace.
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Fun (though totally irrelevant) fact, remember that German trade balance deficit in May that everyone was talking about? Revised data makes it the trade deficit that wasn't, if only by a couple of 100m.
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Core inflation in Belgium was close to zero in September (m/m annualized). Quite impressive slowdown from extremely elevated levels.
German inflation slowed even a tad more than I had thought to 4.5% y/y in Sep with the national core rate dropping to 4.6% from 5.5.%. Base effects do the heavy lifting in both cases, but at 2.3% m/m annualized the sequential core rate also slowed markedly. 1/2
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The increase in Germany's headline inflation rate to a likely 2.4% in May from 2.2% in April was very narrow driven by volatile package holidays and base effects in transport services. In most major categories, y/y rates probably eased slightly. This wasn't a bad report.
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The latest services ESI points to 3.7%ish wage growth in the services sector in Q2 and is trending down. The ECB assumed >4% for the whole economy in 2024.
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If you want to scare the ECB: Price exp. in employment activities point to a rapid wage slowdown. Essentially temp. work is very cyclical and tends to lead functioning as a buffer for labour demand spikes. Industry prob. dominates so likely overstates broader slowdown. Still...
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Yes, Germany's July IP report was horrendous, raises odds of a renewed GDP contraction in Q3, and will kindle recession talks. But the 2.4% m/m drop was heavily driven by the car sector's 8% plunge, where a strong bounce looks likely in August.
If you want to see a little bit more positive German data, the already released VDA car production data points to a strong August. But that is strongly impacted by SA given low # of working days and probably timing of factory vacations. ifo survey, too, remains downbeat.
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German core inflation momentum fell below 2% in June on the Bundesbank's SA measure as the month-on-month rate averaged 1.8% over the past three months on an annualized base.
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Markets may want to take note: Merkel just underlined in live press conference that Germany’s debt brake has a clause for exceptional circumstances and that a forceful response to the virus outbreak won’t be stopped by legal considerations (para phrasing). /1
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Building permits dropped >30% y/y in April clearly supporting the view that the Q1 construction investment rise was driven by backlogs and an unusually mild winter. Construction surveys may suggest a bottom is close but a turnaround looks far off. 2/
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German negotiated wages ended 2024 on a pretty weak note.
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The ifo details for May are out & they point to a continued moderation in German core inflation. Services & retail price expectations fell to a ~3Y low. Hospitality price expec. dropped to below its pre-pandemic average. Don't think July rate cut odds as low as market prices
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If you need support for a bullish story about German recovery the daily truck toll mileage index would be a good start. Lots of valid push-back against using simple historic correlations in this unique environment. But encouraging nonetheless. Avg. June 1st-4th = Q4'19 levels
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The German consumer recovery that isn't. Yet? Official forecasts like the EC's see German GDP growth headed to above 1% next year. They rely on consumer spending picking up sharply in coming months dragging rest of the economy along. Colour me sceptical given fiscal & ECB outlook
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Germany's trade deficit in energy has normalized to pre-pandemic levels and the surplus in other goods has reached 2019 levels.
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Interesting times at the German finance ministry. Its new chief economist gave his first (short) interview in the ministry's monthly report and called for a discussion of the fiscal space that the likely lasting reduction in the neutral rate implies for fiscal policy. 1/2
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The Bundesbank data confirms that German core inflation slowed markedly in Sep to around 2% m/m annualized. Excl. some one-offs, this was the lowest in 2Y and due to an outright fall in core goods prices, the first in 30 months. Can't think of one-offs for this month. Looks real.
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German construction orders in November: Not pretty
Residential orders: Even less pretty
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No, I don't take the ifo's inflation signal necessarily literally. But I do wonder, if rates markets (& consensus) price the inflation risks & policy path correctly for next year.
Preiserhöhungen flauen ab - Die ifo
#Preiserwartungen
sanken im Mai auf 19 Punkte, von 21,5 im April. Beim Einzelhandel mit Nahrungs- und Genussmitteln sank die Zahl ebenfalls, aber auf sehr hohem Niveau, von 69,7 auf 63,2.
#ifoUmfrage
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It's still always the next CPI print that's the most important one. But IMO the sharp slowing in German<' Apr core rate is quite a bit of signal on top of noise. The expected easing in services (reversal of Easter effect) was amplified by outright large drop in core goods prices.
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Germany just posted its first trade deficit in nearly forever...
German Trade Balance SA (EUR) May: -1.0Bln (exp 1.6Bln; prevR 3.1Bln)
- German Exports SA (M/M) May: -0.5% (exp 0.7%; prevR 4.5%)
- German Imports SA (M/M) May: 2.7% (exp 0.8%; prevR 3.6%)
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Can't rely in anything anymore. Not even Germans' notorious inflation fear. The latest CES survey shows a large drop in consumers' 3Y inflation expectations led by Germany.
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The more immediately important news is that German real manuf. turnover fell 1% m/m suggesting that Friday's industrial production report will also disappoint consensus. Given weak orders & surveys a strong rebound in Jul/Aug looks vy unlikely pointing to a negative Q3 GDP print
As expected, German factory orders fell off a cliff in July as the last two months worth of big ticket orders are reversed. Core orders edging up slightly from very low base is a marginal positive.
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If the ECB ever had the fear of moving first, is that now gone after the SNB cut? :)
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Sharply slowing electricity use in Germany points to increasing demand destruction due to high energy prices and supply disruptions halting activity. (Temp. was about same as last year to date in March).
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Energy futures for 2024 are currently some 15% below what the ECB assumed for their Dec macro projections. Still 1.5 months to the cut-off for March projections, but rn a further cut to CPI forecasts looks likely
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It is likely that eurozone domestic demand is already in recession. Initial GDP breakdowns are revision-prone, but French/Spanish data as well as
@destatis
comment on falling consumption suggest that even if EZ GDP contraction is averted the details are weak like in the US.*
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German trucking activity last week continued to point to a modest pick-up in industrial output. And the signal is significantly more positive than that from today's PMIs. I think the former is the better guide at the moment.
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Of the many historic numbers in today's German Q2 GDP details the near doubling of the HH saving rate and the massive widening in the government's deficit are most impressive to me. Their evolution is likely to also define the outlook for the rest of this year and next year.
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Open table data is consistent with ~10% y/y contraction in German restaurant turnover over the summer. That implies further sequential declines from already low levels in June (-13% vs. 2019) consistent with today's downbeat services PMIs.
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Germany's core CPI was about 0.4% above its pre-pandemic trend level in Aug. --> energy prices & base effects mostly drive current high inflation. Within core it's mostly goods (supply bottlenecks) lifting CPI. Service prices are mostly below trend or pushed by taxes/admin prices
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Negotiated wages in Germany were up 2.5% y/y in May but only up 1.3% if you exclude bonuses, which is about the same low pace as throughout last year. Btw, the spike to over 6% in March, which lifted Q1 EZ data, was more due to lack of bonuses last year than a jump this year.
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So we are now at 3% for the indeed wage tracker in the eurozone as of April. What exactly are we waiting for?
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Germany had among the least restrictive containment measures in spring and today's agreement is foreseeing even less severe restrictions. Schools & non-essential retail staying open are the economically most significant differences. Fingers crossed that borders stay open...
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It's very early in the month, but Google searches in the Big-4 eurozone economies point to a fairly steep drop in the ECB's CES 1Y inflation expectations series in June to <2.5%. One to watch.
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Semi-shortage triggered a further massive fall in German car production in August. Jul/Aug output is 21% below the (weak) Q2 average. That's worth a 0.5pp drag on Q3 GDP or thereabouts....
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If Isabel Schnabel‘s appointment as ECB board member was „A new hope“ than surely today’s opinion piece in F.A.Z. by the usual suspects calling for start of rates normalization soon is „The Empire strikes back“. Imagine H. W. Sinn in a Darth Vader helmet.
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Quite a few people on here quoting Destatis release on German negotiated wages this morning covering (Q4) 2021. The more timely data for Feb. '22 is just as downbeat. But we knew that as major deals are only due later this year. More interesting: Italy at 0.6% in January...
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