Deceptive calm and optimism have settled on the German financial markets. Chancellor Angela Merkel is preparing to go to Greece next week to meet with Prime Minister Antonis Samaras—her first visit to Greece since 2007, long before the crisis had broken out. He’d already praised her for saying “that her heart was bleeding” at the sight of the suffering Greeks, or at the sight of herself with Hitler mustache and Nazi uniform in Greek tabloids. She’ll be noisily welcomed.
Perhaps she is trying to mend fences because Germany, after hyperventilating for two years about its superior economic model, is worried about the economy, and about its export markets, and above all, about the election next year. It would be a heck of a lot easier for her to hang on to power if Germany isn’t in a deep recession by then because exports dried up.
They’d done that before. When the financial crisis hit the US, China, and to a lesser extent Europe, Germany’s customers stopped calling. In the third quarter of 2008, GDP plummeted 2.1% on a quarterly basis, and in the first quarter of 2009 a horrid 3.8%. Annualized, a double-digit swoon. The worst in the history of the Federal Republic. A nightmare no German exporter would ever forget.
They were saved not by their own ingenuity and hard work, and not by their superior economic model, but by the besotted stimulus and QE frenzy in the US, China, and elsewhere. The recovery was steep. And a couple of years later, the gloating started. They called it the German “success recipe.” Well, that was last October.
Now the crisis has wormed its way into every aspect of the economy, and the downturn in export orders is once again spreading fear and trepidation. But this time, the part that had been considered invulnerable is getting slammed: domestic demand.
Monday, it was the machine-tool massacre. Orders for machine tools, one of the coddled key industries in Germany, dropped 11% from prior month, with export orders down 6%—cause: uncertainty, the China slowdown, the Eurozone fiasco. But domestic orders dove 18%.
Tuesday, it was the auto industry massacre. Sales of new passenger vehicles, as measured by registrations, dropped a dizzying 10.9% from September last year. German auto sales had been holding up well despite the crisis and remained positive until summer. But July wasn’t good. August was worse. And September’s huge drop pushed sales for the year deeper into the negative.
There were some winners, notably the Koreans Kia (+44%) and Hyundai (+15.2%)—which have been on a tear since the financial crisis—as well as Porsche and Audi. Mercedes barely eked out a gain. The list of losers was long and included even BMW and market leader VW. Ford fell by 8.8% and Opel by 13.2%. And a harbinger of movements in the larger economy, commercial vehicles (buses, trucks, and tractors) tumbled 15%, with tractors plunging 25.8%.
Wednesday, it was the Composite PMI for manufacturing and service. It declined again in September, after having plunged in August at the steepest rate since June 2009. It was the seventh month in a row of declines. Due to the lack of incoming work, businesses have been living off their shrinking backlog. When that is exhausted, production will nosedive.
Thursday, construction took it on the chin. It had been doing well until six months ago. In September, the intake of new orders by contractors fell sharply, due to “weakening demand in the wider economy.” And the Draghi-Bernanke effect began to rattle some nerves: input price inflation had picked up.
Employment has come under pressure. Opel and Ford are leaking red ink from their head gaskets. Other employers are trying to cut costs as well. But it’s not easy. There are negotiations underway to reinstitute part-time work (Kurzarbeit). Lufthansa just announced that it would slash its administrative work force through early retirements and buyouts. Even the Monster Employment Index, whose year-over-year growth in online ads has been over 30% earlier this year, stumbled on Friday. Its index for August edged up only 7% from prior year, but and on a month-to-month basis, it has been losing ground and is now down 3.2% from its peak in April.
And then came the industrial orders bloodbath. Seasonally adjusted, they dropped 1.3% in August from July, much worse than expected. Export orders only stagnated, thanks to an uptick in orders from the Eurozone, which are still down 12.6% for the year. But domestic orders dropped 3% overall, and 6.8% for capital goods, which left observers breathless.
With shrinking order books and rising inventories, German industry is facing some challenges. Consumers have become reticent. Corporate titans have been busy with disappointing preannouncements. So Metro AG, Germany’s largest retailer and wholesaler, just issued an earnings warning, blaming the weakness in its major markets. And its stock got pummeled. But the Draghi-Bernanke effect took care of the rest of the markets, no worries.
Across the Rhine, something unusual happened. Unusual for France. The government is jacking up taxes, including the capital gains tax. But it was just too much for the hapless entrepreneurs, VCs, artisans, and mom-and-pop business owners: they revolted. Read.... A Capitalist Revolt in Socialist France.