Germany's Worst GDP Ever - Is There Still a Ray of Light?

While the assumption of many is that China or the United States is the world's largest exporter, it is in fact Germany. [May 21, 2008: Who is the World's Largest Merchandise Exporter? Not China. Or the US] Until we start to see exports rise in many of the leading exporting countries (US, Japan, China) we can smile glowingly at the Baltic Dry Index (which is basically now a prisoner to China's whims) all we want and talk green shoots.

Germany is in a struggle with "worst GDP ever" (keep in mind they only started records in 1970) and exports are in bad shape, although not as horrific as Japan. This is also the longest spate of negative GDP quarters per their records at 4. Oh, and in Germany green shoots translates to ray of light.

As always, if you drink Kool Aid in large quantities, please dismiss all bad data as "backwards looking" while gleefully waving around any "better than expected" data as not backwards looking. i.e. bad news doesn't matter because it is in the past, while that same, backwards-looking data when "better than expected" supports our case! You indeed can have it both ways...

Via Bloomberg

• German exports and company spending plunged in the first quarter, dragging Europe’s largest economy into its deepest slump on record. Exports dropped 9.7 percent from the fourth quarter and company investment declined 7.9 percent.
• Gross domestic product fell a seasonally adjusted 3.8 percent from the previous three months, the office said, confirming an initial estimate from May 15. That’s the steepest drop since quarterly data were first compiled in 1970. The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction for Germany’s economy.
• The worst global recession since World War II has exposed Germany’s reliance on exports as an Achilles Heel, forcing companies to slash output and cut jobs. Chancellor Angela Merkel’s government will spend about 82 billion euros ($115 billion) to fight the crisis, and the European Central Bank has cut borrowing costs to a record low.
• “The German economy should stabilize in the coming quarters, backed by the ECB’s aggressive monetary easing and the government’s stimulus package. A recovery in the truest sense of the word will only materialize in 2010.”
• ....company investment in machinery and equipment slumped 16.2 percent and construction spending declined 2.6 percent, today’s report showed. Imports fell 5.4 percent in the three months through March, almost half the slump in exports, so that net trade reduced GDP by 2.2 percentage points.
• “We expect an ongoing recession in the rest of 2009,” said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. “However, the speed of the deterioration should at least decelerate. (the all-important "2nd derivative improvement" aka "it is getting worse slower") This also seems true for foreign demand, thus the export sector should hardly give impulses for the German economy in the next few months but the drag should be smaller.”

But let's not get gloomy - there are "rays of light"

• There are signs of stabilization. European confidence in the economic outlook increased for the first time in 11 months in April and the recession in the region’s manufacturing industry eased for a third month in May.
• “The latest data suggest an imminent end of the free-fall in industrial activity,” said Alexander Koch, an economist at UniCredit Group in Munich.
• ECB council member Axel Weber said yesterday that while “rays of light” are positive, there’s “no reliable indication that the global economy is past the worst.”

[Mar 3, 2009: German Auto Sales Boom to 10 Year High Due to Government Scrap Bonus]

Comments

[onebir:]

"Gross domestic product 3.8 percent from the previous three months..." If I've read this right that's a 3.8% drop *relative to the last quarter*, or a 16.1% annualised drop, for people used to annualised figures.

"The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction." It'd be interesting to know just how far the level of GDP has dropped from peak - or see estimates for the German output gap (unreliable though these estimates inevitably are).

"“the speed of the deterioration should at least decelerate" or there'll be hardly any economy left. Does the *prospect* of a slowing deterioration count as a "green shoot"? (It is fair to say GDP is backward looking though)

May 27 01:39 AM

[TraderMark:]

yes that is correct if you annualize it, but obviously Germany's economy won't be in that level of freefall all year (we hope) :)


On May 27 01:39 AM onebir wrote:

> "Gross domestic product 3.8 percent from the previous three months..."
> If I've read this right that's a 3.8% drop *relative to the last
> quarter*, or a 16.1% annualised drop, for people used to annualised
> figures.
>
> "The first-quarter drop in GDP marked an unprecedented fourth successive
> quarterly contraction." It'd be interesting to know just how far
> the level of GDP has dropped from peak - or see estimates for the
> German output gap (unreliable though these estimates inevitably are).
>
>
> "“the speed of the deterioration should at least decelerate" or there'll
> be hardly any economy left. Does the *prospect* of a slowing deterioration
> count as a "green shoot"? (It is fair to say GDP is backward looking
> though)

May 27 10:41 AM

[notsosmart:]

"we hope".good one."speed of deterioration".another good one. love this site.amusing & so many diverging opinions on the same subjects.makes my head spin.

May 27 03:50 PM

[John Galt:]

The speed of decline SHOULD decelerate or the speed of decline IS decelerating? ( Answer: It Should decelerate which means that it hasn't yet)

In America, the rate of job loss HAS slowed a little bit ( at least this past month) but is losing 500K and change jobs instead of 600,000 jobs really such a great thing?

Much of this rally is built on speculation that " the market recovers 6-9 months in advance" and people are trying to time the bottom so that they earn the greatest return on their money. Fear and Greed still apply. The government feeding people what they want to hear helps keep the rally going ( see stress tests)... the government believes that it's a "confidence problem".... Maybe in the short term extra confidence could make the market go up as in the short term the market is a popularity contest but in the long term it's a scale...

but what happens if they "didn't" pick the right bottom and what happens if we don't get that V shaped recovery that they want?

$

May 27 11:20 PM