This economic slowdown is not unique to Germany but has been spreading across the EU.
OK, this is embarrassing in the land of super-stimulus via the ECB’s negative-interest-rate policy and years of QE that were supposed to perform miracles: Production in Germany’s industry, which includes construction, dropped 1.9% in November from the prior month (seasonally adjusted), the German statistical agency Destatis reported this morning. This drop is also embarrassing because economists polled by The Wall Street Journal had expected a 0.3% gain.
The agency also downwardly revised October, to a monthly decline of 0.8%. This makes three months in a row of declines. In November, compared to a year earlier (adjusted for inflation and calendar differences, but not for seasonality), the production index dropped an ugly 4.7%:
Production was down in all major segments, including energy and construction which are focused on Germany itself, rather than exports.
On a monthly basis, seasonally adjusted:
- Industrial Production excluding energy and construction: -1.8%
- Production of capital goods -1.8%
- Production of intermediate goods: -1.0%
- Production of consumer goods: -4.1%
- Energy production: -3.1%
- Construction: -1.7%
Industrial production is a big power in the German economy. And the trend is not good. Germany’s GDP already declined in the third quarter:
The declines in production in October and November put Germany a step closer to “negative economic growth,” as it’s called euphemistically, for two quarters in a row. If this occurs, it would be a technical recession.
And it’s not going to get a lot better soon: Destatis reported yesterday that new orders in manufacturing – a harbinger for future production – dropped 4.3% in November from a year ago (adjusted for inflation and calendar differences); and it revised down October’s orders to a year-over-year drop of 3.0%.
The difficulties facing the German economy have been amply projected, by the forward-looking ZEW indicator that measures expectations for the German economy. It started plunging early summer last year and continued plunging into November [read… “Outlook Deteriorated Even More for the Eurozone than for Germany,” Despite NIRP?]
The good thing is that private and public consumption are holding up for now. Retail sales still clung by their fingernails to gains in November, inching up 1.1% from a year ago. And in the fourth quarter at least, they could absorb part of the damage taking place in Germany’s industry. But it is likely that GDP in the fourth quarter will once again wildly disappoint economists and the government that have already been lowering their projections, but haven’t lowered them nearly enough.
And this economic slowdown is occurring despite, or perhaps because of, the mother of all stimuli engineered by a major central bank – negative interest rates and massive QE – that has benefited a few hedge funds who were able to front run the ECB’s bond buys and make a quick buck, and bond traders for a while, as bond prices were rising due to falling yields. And it has allowed even junk-rated companies to borrow money for a song from beaten down investors, savers, and pension funds. But this stopped a year ago. Since then corporate bond prices have fallen as yields have risen, particularly at the riskiest end of it. Stocks are down sharply across the EU too, with the German Dax down 20.5% from its 52-week high a year ago.
This economic slowdown is not unique to Germany but has been spreading across the EU.
It’s just a bitch when the massive central-bank stimulus that messed up so much produced so few if any lasting economic benefits. And all these economic activities described above were taking place even when the ECB was still pursuing its QE, including buying corporate bonds, to repress returns for investors and the cost of borrowing for even the riskiest companies. But this too has now ended.
Here are some ugly long-term charts, including those of Europe’s stock markets, that Wall Street doesn’t want us to see. And now US stocks are infected too. Read... Long-Term “Buy & Hold” Crushed Stockholders in Largest Markets Except US & India. But for the US, Luck’s Running Out
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Back in 2008 I proposed that we should stimulate the economy by paying off the debts of everyone registered in Experian as deadbeats.
Reason being that we would be helping someone get out of the hole, the people in RKI are proven to be good spenders and the money would go straight back into the economy.
The QE for the rich – the asset bailout – in the end it only goes into some numbered account in Basel or Lichtenstein and never “prime” the economy.
Ah. Well. Moral Hazard got in the way.
You got the understanding of moral hazard wrong. If you pay the registered experian deadbeats do the savers get a refund too?
I think he means that “objections that such a plan was a moral hazard” got in the way. That’s the only way it seems to make sense.
Personally, I heartily dislike the idea of giving money to deadbeats and deadbeats only, which seems to me to effectively punish the prudent poor.
They could have given money to everyone, if they were going to be giving it out. Or they could have given it to everyone making under $80k, perhaps with people over $50k getting proportionally less until the gift vanishes at $80k.
I don’t know if that’s the best plan but certainly there are ways to hand out money that are more fair than artificially inflating the stock market and every other financial asset.
We hashed over something like this a while back. Negative income tax.
The US being a Puritan Calvinist country, you can’t just openly do it, you have to find circuitous paths to filter money to the poor, but it’s a huge boost to the economy overall to do so.
Fajensen, in a way your 2008 proposal has become reality: deadbeats are protected by an effective floor set by benefits (certainly in Europe) and also the reality that debt collectors don’t chase small and really bad debts too hard. Not saying the deadbeats’ position is enviable or necessarily their fault. They are just a group whose votes are relatively cheap to buy in this regard.
It’s the middle class that’s been left behind, running ever more furiously in their hamster wheels trying to keep up. Slowly it is dawning on them that they won’t be able to unless something changes. With the lower middle class feeling the pain first and that’s who you see marching in France now for 7 weeks and counting.
I get “Wolfetone guitar pickups” … and those young women gagging for older men, those women must totally exist.
That is not how Internet advertising works. Every time YOU look at a page, a real-time ad auction is held based on YOUR web data. Some advertiser thought you were a prime candidate for that ad and paid for it.
I get ads for Amazon and a board game sales site.
You may need to get a handle on what websites you frequent, rather than asking Wolf to mitigate what the advertising algos display, which is outside his control.
I run adblock and donate to the content creators I value (wolf being one of them). Ads have gotten so bad the ruin the whole experience. I would rather just monetize the writers directly.
Central bankers have gotta do more in response… otherwise it’s an admission what they did first time around didn’t work … and, well, we can’t have that can we. Plan B = more of Plan A. Particular to the ECB case, they are going to have to find some more securities to buy!
All the central bankers can do is lie or find another scapegoat. Long term debt and falling birth rates are what sunk all these countries ages ago.
Steve,
Online advertising serves you ads based on what algos think you want to see, based on numerous factors, including your browsing history. Online advertising is personalized. I don’t see the ads you’re seeing. I see different ads. Maybe it’s time for you to clean the cache in your browser.
Assume that the German recovery was as long and as mild as the US. US GDP is still strong (because JP raised rates?) This recession may be the most over anticipated (truck orders) event in recent, a fait accompli? So how do you say Yellow Vest in German?
The AfD is nothing like the yellow vests. When it was founded back in 2013 it was intended to be an arch-conservative counter to Merkel.
However, since the party conference in Stuttgart 2015, it has been controlled by Neo-Nazis exclusively!
People like Höcke (Holocaust wasn’t that bad/didn’t happen) to Gauland (Holocaust is nothing more than birdshit on Germany’s history) are in full charge! Even former “moderate” leader Petry said back in 2016 that refugees should be shot at the border without warning!
This is not conservative populism, it is old fashioned fascism, nothing more.
These people terrify me, and they should terrify you as well!
Here is Gauland’s statement in german, along my translation.
The AfD has absolutely nothing to do with the yellow vests with whom I am mostly in agreement.
“Hitler und die Nationalsozialisten sind nur ein Vogelschiss in 1000 Jahren erfolgreicher deutscher Geschichte.“
-“Hitler and the Nazi’s are only birdshit in 1000 years of successful german history.”
Here is a link in german:
https://ze.tt/so-reagiert-das-netz-auf-gaulands-vogelschiss-kommentar/
Zeit incidentally is a conservative german newspaper.
Petry did not say refugees should ‘be shot without warning’. In an interview she said that the borders should be closed. She was then confronted by the interviewer with the hypothetical scenario that masses of immigrants would press through the border in spite of police trying to block them and pressed multiple times if a border policeman would be allowed to use his weapon. Her answer as an exact quote: “The policeman has to block the illegal border crossing, as a last resort by using his service weapon. That is what the law says’. Which is factually correct. She never said anything about ‘they should be shot’ or even ‘without warning’, absolute nonsense. And the question itself is so constructed that it’s nonsense in the first place: Of all EU countries Hungary had the most heavy handed approach to the refugee crisis, way tougher than anything that Petry was ever suggesting, and effectively succeeded in blocking the Balkan route to hundreds of thousands. Noone was ever shot at the Hungarian border. The rest of the statement is similar exaggeration. The AfD has nothing at all to do with fascism, but represents the christian democrat party (CDU) of the 1980s, while the CDU meanwhile has drifted towards the Greens over the last 20 years. For outsiders it’s difficult to fathom the paranoia of the German left towards the AfD. For the German left everyone more conservative then let’s say Dennis Kucinich would be a right wing extremist.
sorry, an unfortunate joke. i had read statements by them early on when they renounced fascism and naziism. obviusly things have changed.
Let’s see. Germany can’t stimulate internal demand because its demographics are not conducive to growth. It can no longer export its internal savings to the PIIGS so that they can borrow to stimulate Germany’s manufacturing. Its imports to China are also slowing.
Not sure what gets Germany out of this.
Or, Germany is choosing thru policy choices to strangling internal demand by driving down wages and transferring them the rich gigantic corporations and the ultra rich…who hoard money…thus driving demand down.
Solution:
Different policy choices, one that increase wages and reduce profits.
One reason for that is that Germany has attempted to play some geopolitical role. So people from outside the EU just stopped buying their stuff. I guess all their hopes now are on expanding EU further, but that would mean even bigger strain for Germans.
A no deal brexit will hammer German industry
In 2017
Germany imported ~37.1 from GB (#1: vehicles and parts ~5.7)
Germany exported ~84.4 to GB (#1: vehicles and parts ~25)
all figures in billion €
Trade will certainly suffer and Germany has more to lose in direct trade than GB, but German premium cars for example will remain in demand by the British clientel least vulnerable to BREXIT.
What is worse, is that GB exports, which account for roughly 50%, will suffer throughout the EU.
I imagine that German manufacturers are eyeing these exports, seeking to absorb GBs losses wherever possible.
“…but German premium cars for example will remain in demand by the British clientel least vulnerable to BREXIT.” A lot more than BMWs and Benzes in that 20 billion Euro German trade surplus in autos. Brexit is going to hurt in Bavaria.
German tax payers will be on the hook for British contributions into the EU, they will have to pickup the 9% the Brits currently add. As one of the few contributors left.
Every action in economics has a reaction, often of unintended consequences.
ZIRP crowds out investment in income producing assets (and their attendant jobs) while creating inflation in paper assets. ZIRP, in effect moves paper assets into the bond market- the lower the economic rent on the price of money, the greater the nominal price needed for any given rentier asset.
Belated Happy New Year Wolf.
That´s what Brexit, is really about, John. A UK version of a trade war.
Yes it will. Nonetheless, Germans including business have decided that the preservation of single market is far more important that pleasing the UK.
Germans are resigned to the hit to the economy.
It is funny how people think that playing pain-chicken is such a winner. Austerity must be rotting brains all over it seems.
That kind of game used to be filler on MTV, a staple on YouTube and now it’s become elevated to the pinnacle of international politics!
Reality is that Germany can take a hell of a lot more pain than the UK.
For the sake of Italy, Portugal, Greece, Poland, Spain and all the other members of the single market who get more than they contribute I hope you are right, that German can bear the weight along with France (which seems very stable and extremely willing) to go along with Brussels an prop up the EU. I’m sure the all the debt from the other members running deficits won’t have the slightest effect on Germany, Deutsche Bank doing good, right?
I did not say anywhere that there would be “not the slightest effect on Germany”, I am saying that Germany, business and government, are prepared for it and willing to pay a price to keep the Inner Market. It is “costs of doing business” to them.
In the longer term, “things” that survive can change and adapt to the environment. Also, any successful ecosystem will have parasites. And, any successful ecosystem will evolve away from the parasite load – but never succeed in their total eradication because new and better parasites will evolve. Nothing is static.
It was only during the last 3-5 decades that government debt somehow became a ‘Holy Artifact That Must be Preserved at ALL Costs’ and it was only during this last decade that ‘Private Debt became government debt That Must be Preserved at ALL Costs (to society and the taxpayers)’.
I don’t think it is realistic to believe that Everything Must Now Go Down in Flames just because of some Holy Principles, which are also Brand New, must this time be obeyed ‘Zum Endzieg’. Once a problem is big enough, it becomes politics and there will be a messy, but kinda working, “solution” devised for it.
Back in the 1980’s there used to be sovereign default every 4 years on average. Not the end of the world that, nobody not left holding the brown end of the stick actually cared. It was cost of doing business in government bonds.
There is no singular Big Red Button blowing up the “Evil EU” like there always is in those movie villain lairs.
What there really is, is that a generations worth of “finance” has been spoiled way beyond any reason and now the regime is changing and the spoiled brat will throw a tantrum over having to work and take risks and stuff like those “normal people”.
In practice, people still stupid enough to lend freely to Greeks, Italians, Icelanders and Portuguese will suddenly learn that this time around Big Bad Government does not have their back. Because Brussels have quietly gone and changed the rules.
Well!? So Sad, Sucks to be them, doesn’t it? No Patek Philippe for Christmas this year or even the next, the outrage!!
Interest rates will go up over it, this driving the inflation that all the of QE could not ignite and the ECB will do something stupid again. The world just changes and adapts, goes with the flow.
PS:
I have a ‘Buy’ on Deutsche Bank at or Below 2.99 EUR.
The Japanese stock market peaked in 1989 and has lost 80% of its value since. Could the same be happening to other nations?
Harry Dent predicted what we’re seeing today in Germany a long time ago.
No it cannot,,,bec. ECB , FED and all the other centralbanks are going to print money .The whole world are in big debts before it was only japan. Buy Gold/silver coins and sleep and go to holiday and feel good.
Can see why Merkel is bailing out.
The German car industry is due a big correction. Overpriced cars with failing emission issues.
On the plus side.
German citizens are great savers. Not just paper wealth, but physical gold, silver, diamonds, and other precious gems and metals.
They have the Great Inflation of 1922 seared into their collective memory, when all but those who had physical wealth, were destroyed. Giving rise to national socialism (fascism) under Hitler. Somewhat mirrored now in many other countries, as people move to the ultra right.
Whereas, in the US +90% of the citizens don’t own physical gold or silver and have very little in the way savings. Most can’t even come up with $1,000 to cover an unexpected expense without selling something or going farther into debt.
As a nation, German citizens are better situated to weather an economic storm than most other western countries.
“better situated to weather an economic storm”
You can’t eat gold, silver, diamonds, and other precious gems and metals.
And I won’t take gold/PM for my cattle.
Now if you have a case of good whiskey we might have a barter.
> And I won’t take gold/PM for my cattle.
You also can’t take your cattle with you if you have to flee.
Without providing details we will not have to flee…
Hi, TX – Thanks for your well-wishes awhile back and Happy New Year to you, too! (Us old folks is sometimes late out of the starting gate.)
My cattle herd was Registered Angus and it’s now incorporated elsewhere: https://lenpenzo.com/blog/id46762-grandfather-says-hes-a-cowman-he-hasnt-been-a-boy-in-years.html
…but I used to occasionally barter breeding stock for what my neighbors had to offer that I needed and I would have accepted PM at its current dollar-denominated price from a cattle buyer.
The latter is not likely to occur in ordinary times, but could in times of systemic financial breakdown. It is as “insurance” against those times. that some of us hold PM.
Waste of concern? Time will tell.
You can use your silver coin and buy many bottles of good whiskey and nice food with it, when money as it is today disappears.
You can also make good deals if you have PM. You can buy land,cars, houses cheap…..
But when it comes down to surviving, as in that devastating currency destroying hyper inflation in Germany after WWI, the Germans were trading their gold for food. Not growing food, but giving up their gold for food. This worked very well until their gold ran out.
Happened in the Warsaw Ghetto too: gold, paintings, jewels, etc, bought vital cans of food and medicines from the Jewish traders, who thought they would simply clean up after the war – however, they found that they had simply been convenient collectors for the Germans and their hoards profited them not a bit….
Those fleeing France over the Pyrenees certainly in most cases bought their lives (which I suppose we can deem truly priceless) with their jewels and gold, and most were delivered and not murdered by the guides.
This. And the US is raising a whole cohort of austere-nauts not just older folks who remember the Starving Seventies but the whole post-crash economy, plus the game-ifying of saving (as well as everything else) hard times make for habitual saving.
Germany has suffered most from the ECB QE. Many retirees, who expected to live on investment income, were unable to do so because of the zero rates.
Also it is not clear what impact their reliance on renewables has had. It is not clear whether that investment was really worthwhile.
The <10% here will do well, too (if and when!)
Meanwhile we are fools, aren't we? "Missing the bus", etc.
The “Mother of All Bubbles” will eventually create the “Mother of All Corrections”. Considering that I’m an Elder, I hopefully won’t be around when that finally occurs. C’est la vive :-]
Nice to see believable figures unlike America, China and Japan.
German industrial production really is a bellwether for the global economic outlook. Expensive long-life investment goods orders down is a reflection of well informed customers opining with their capex wallets.
Well it had to come to this, and apart from the average citizen, many will know. The easing that took place is assumed a political ploy, along the lines of globalism at a continental level. Sure those in government would have watched the bubble form in the south, the subsequent easing was further leverage during harmonisation. Get this though, most large countries in Europe have roughly similar national debt per capita, though obviously to GDP will give a different perception. However there is a major difference re. Germany and that is that it is a main creditor to the rest.
So you end up with an odd equation, where productivity across EU deflates with Germany being the last to succumb, as it has won the major international position during/due to Euro and so dropping demand will affect it last (when other countries have already tightened their purses). So Germany will harmonise towards its neighbours now, as opposed to they being credited ( or force credited) to harmonise towards German/EU standards.
As this will be an EU event that will now find every country in a similar circumstance of despondency, but/and with Germany having the advantage as creditor, which is a disadvantage in terms of obligation to follow a common EU policy to gain repayment (or can be sold domestically as that), you can expect it to attempt to be used as a stepping stone towards ” a common circumstance ” in EU, meaning basically that it will be the point that national economic (and likely political) management is transferred more fully to EU.
Why? Because unless you want a complete breakdown in the current European order, including non payments and trade borders, and the loss it might cause would be made more than obvious, then a combined budget, policy and administration will seem the only feasible management, and of course the ECB will hold the key to allowing that to work – without accord payments will not be met, with accord they will be repackaged with a few bonuses to go round as well.
Europe is quite disorganised at the moment, it is hard to tell if this is to purpose or reactionary, so it is hard to say exactly how this will evolve, or if EU will fragment. Toss in Brexit and it gets even more confusing.
Hell replacing heck and now bitch in an article. Wolf is becoming quite the potty mouth!
If you google the growth rates of major economies in Europe, most are around 1.00%/year or less…and I’m being generous with my eyeballing the figures. Germany is on the high side.
If you look as U.S. growth rates the past 10 years, they have been significantly lower than historical average especially if you factor in there should have been a much sharper rebound coming off such a severe recession.
Yet, the governing class never, ever thinks this has anything to do with their policy choices.
Insanity – doing the same thing over and over again, each time expecting a different result.
On the other hand, results this bad can’t happen by accident, they have be planned for and intended.
“On the other hand, results this bad can’t happen by accident, they have be planned for and intended.”
As Wolf has said man times, the intention of Fed policies was to boost asset values for the wealthy. And boy, did they ever. If this is insane, then insanity is doing the same thing over and over again, and gaining more wealth each time.
Rather, it might be that it is the 99% who are insane, for meekly accepting Fed policies that benefit .01% of the population while pushing most of the rest the population down deeper in the hole.
What’s “wealth” depends on your persona and perspective.
Wealth to the dung beetle is horror to SF homo sapiens with stinking streets.
When I was a kid attending grade school fairs we would participate in events to win little prizes. One interesting toy we might win was what we called a Chinese finger puzzle. The puzzle was a woven tube about 4 inches long and just large enough to insert a finger into one end and another finger into the other end. It was difficult to pull your fingers back out, but very easy to push them in deeper.
When I read about the actions of Central Banks (QE enabled), I’m reminded of those puzzles.
“It’s just a bitch when the massive central-bank stimulus that messed up so much produced so few if any lasting economic benefits. And all these economic activities described above were taking place even when the ECB was still pursuing its QE, including buying corporate bonds, to repress returns for investors and the cost of borrowing for even the riskiest companies. But this too has now ended.”
Couldn’t have put this better than you have done here (above), Wolf.
Being Irish and having had to endure the very very bad days as a result of the 2008 crash, during 2008-2014, and our government selling our population out to the IMF and the ECB, it is with a degree of schadenfreude that I read of Germany’s current economic woes.
These people have had every advantage handed to them through the operation of the Eurozone and the direct manipulation of the ECB and ECB policy making – and they’re still in the manure.
Yet their politicians will no doubt continue to lecture the Spanish, Italian, Portugese and Greek citizens about the merits of working harder, for longer. I despise the current crop of German politicians, and I say this as someone who’s great grandfather was born and raised in Baden Wurttemberg.
You cannot live above your means and expect other people to pay the bill. Germany is not the sugar daddy of Ireland, Greece and others. Nobody has to buy German products if they cannot afford them.
If the politicians you despise had acted differently, AfD would have 30% votes at least.
“Germany is not the sugar daddy of Ireland, Greece and others.”
But the German taxpayer is the sugar daddy of Greek bond holders (mainly French and German Banks) who would have taken a hit if Greece defaulted on its payments……..
It’s not just Germany… this situation is affecting another bellwether exporter: South Korea… Samsung and LG both announced earnings and revenue guidance today which were downright awful.
South Korean exports growth (or lack thereof) is highly corallated with future global EPS growth and these corporate results will surely weigh on SK exports. This in turn is an extremely bad omen for equities.
Surely a great time to have added millions of low/no skilled immigrants, most of which have zero interest in assimilating. I’m sure its going end well for all Germans and Eurozone one world believers. Important to give up sovereignty. Working swell for the Macron’s of the world.
Great article!
So this means the dollar rally is intact. Emerging marlets will continue to get slammed due to the cost and scarcity of euro-dollars. Since a weakening Germany is ‘the euro” we can expect the DXY to continue up until it crushes all non-believers.
Just in time too, with Powell getting squishy on rates.
So, pray tell, why is the usd on a slow but steady slide against the euro, given fed hikes, decent yield differentials, brexit, yellow wests, EU elections approaching, us midterms past, Italian populism… and now this slowdown?
strike “slow but steady”, just “steady” looking at today’s move again
also, apologies for (ac) typo on yellow vests
but the question remains: whence the dollar weakness?
Wolf,
I’ve posted this article to SA many times. Hope you enjoy it and leave it in the comments for others to read.
**Prolonged** interest rate suppression is a big problem. It detrimentally affects various collateral markets, and in a very bad way. Negative feedback loops ensue.
Degraded productivity and long term real economic growth are just the tip of the iceberg….
https://www.gisreportsonline.com/the-consequences-of-prolonged-low-interest-rates-in-europe,economy,2465.html
The eurozone does not have expansionary fiscal policy. While is it is true that the EU has a loose monetary policy, it is not working because it is in a liquidity trap. That means that there is no demand because individuals expect deflation so they are not taking advantage of the loose monetary policy. The EU tight fiscal policy is not helping. Note that the EU has 7.9 % unemployment vs the USA with a 3.9% unemployment. Also, there is substantial output gap in the EU whereas the US does not have one.
Exactly Shane. The fact is that it was Germany via Goldman Sachs which “overlooked” Greece’s economic structural problems and insisted it be fast tracked in to the Eurozone system. Same goes for Italy, Portugal and Spain. Eurozone is in reality a cover to allow Germany to flog its exports to other Eurozone member nations, among other things.