You heard it here first. Over the past 12-18 months this space had warned that Germany was on the verge of a decline of historic proportions. It was particularly dangerous since the country’s economy is so geared toward the automobile industry, a sector that has globally been hit very hard going into 2019. I have accepted the flack I received from an establishment of readers that is mostly still in denial and disagreement, but I haven’t stopped pointing out the consistently emerging evidence of my thesis.
We are again at a point when an update is due. Industrial orders for December plunged on weaker demand from other eurozone countries, unexpected to the many but just another piece in the jigsaw puzzle of decline in my book. Orders fell by a whopping -2.1% from November, contrary to very constructive forecasts all around. This is accounting for the largest drop in almost a year. Of course, the coronavirus outbreak provides a perfect excuse, as foreign demand fluctuations have been found to be the culprit.
Be that as it may, the outlook for the industrial economy remains subdued, to say the least. Germany narrowly escaped a recession last year but will not be so lucky in 2020. The standstill of China’s economy, potential fallout from Brexit, and not to forget an inherently weak eurozone will make sure of that. And as long as Berlin’s has no clue how to devise a country’s industrial policy, how to employ budget surpluses, or how to even run an economy, there will be no light at the end of that tunnel.
We already got off to a slow start this year. Last week the Ifo Institute released its monthly survey on business morale, which was nothing short of a travesty. The weakening demand situation suggests that the manufacturing slump will deepen from here and not rebound as the politicians have been propagating, which in turn means we can kiss all those still rosy growth expectations goodbye.
The new monthly report by the association of the German automobile industry is testament to this development. January’s output of passenger cars was down -8.4% from the same month last year, to 341,000 units. The number is insofar remarkable as in January 2019 output had already been extraordinarily weak, namely -17.8% year-on-year. The total number for 2019 had been down -9% from 2018, which constituted the lowest reading in the past 23 years.
Let’s look at absolute numbers here. In 2019 a total of 4.66 million vehicles were produced. Compared to the all-time high output in 2016 production has shrunk by a whopping 1.09 million units. This in itself is massive. If the downward trend continues in 2020 as the January reading is hinting at, where is German production going to come out at…? 4 million? Inside 4? I leave it to everyone to imagine what that will do to an economy of which the auto sector commands a good 20% of its value add.
It remains a riddle how sparingly this existential decline is being addressed in Germany. Peter Altmaier, the respective minister in Angela Merkel’s cabinet and a confidante of the chancellor, presented his annual economic report to the Bundestag recently. He said that Germany’s prospects have become brighter. How much more of a head-in-the-sand policy does one want to conduct? It is a mystery what macro numbers Altmaier is looking at.
Unfortunately, there is little hope for improvement of political guidance. Angela Merkel remains a lame duck, new elections may only be held in 2021, the leading CDU doesn’t have a candidate to follow Merkel, The Green party is surging in the polls, and the liberal leader of the smallest party in the state of Thuringia has just been elected prime minister, endorsed by and at the mercy of the rightist AfD, and triggered a mini-earthquake within the federal coalition. Enough said…?
