Germany shrinks

By Chris Becker

Last nights monthly industrial production stats for Germany – the powerhouse of the great European experiment – were shocking, down 4% month on month and reversing to a nearly 3% retraction on an annual basis. There is now open talk of Germany possibly going into recession, joining its southern “brothers” as the continent wide fragile recovery from the GFC turns inwards once more.

The reasons for this are quite easy to discern, but will not be admitted by those in power – the German technocrats that control the ECB and decision making in Brussels. The EU has a hybrid monetary system that cannot work over the long run, a currency union without a central monetary authority and a central fiscal control, that can neither subdue inflation nor imbibe aggregate demand.

Witness the broad scale monetary easing in the United States, which is indeed an amalgam of completely different regions, cultures and economic powerhouses and laggards, that has engineered a recovery due to its ability to stimulate across the board both fiscally at the federal level and by the Federal Reserve’s QE program.

Unemployment and GDP growth has recovered in complete comparison to the EU:


Germany is now in trouble, with last quarter GDP printing in the negative, and its export focused model (swapping the powerful Mark for a dirt cheap Euro) now under pressure with foreign orders both within the EZ and its major export partners down nearly 10%

More from Wolf Richter:

The problem with orders is that they lead export-addicted German GDP: if orders drop, so does GDP, but with a quarter lag. And orders have taken a decided turn south.


That these comparisons to January 2009 are suddenly reappearing is unnerving: the first quarter that year, the economy fell off a cliff, with GDP plummeting 4.1% from the prior quarter. No German industrialist will ever forgot those months when orders and exports simply dried up.

For the rest, it was dreary: production of consumer goods fell by 0.4% and intermediate goods by 1.9%. Construction was down 2.0%. And production of capital goods, a critical indicator of business investment, plunged 8.8%.

All hopes are now on September. It would have to pull Germany out of its deepening malaise. It would have to be powerful. It would have to crank hard to prevent the economy in the third quarter from continuing its decline. But September already doesn’t look that hot. Markit’s Retail PMI, which surveys 400 retailers about month-to-month changes in retail sales, plummeted to 47.1 (below 50 = contraction), to the worst level since April 2010, unnervingly close to that terrible year of 2009.

And so in the third quarter, Germany’s economy might decline once again. It would be the second quarter in a row of declining GDP. It wouldn’t be an official recession (which takes other data points into account as well), but it would qualify as a technical recession. And then it would take a true Q4 miracle – of which there aren’t any on the horizon just yet – to pull out the year.

The question isn’t if German is a miracle economy – it does get some domestic policy right on the money, especially housing – it’s whether or not Europe can survive with it pushing the levers, dictating austerity for others and holding back the real structural changes.

Germany’s fall into recession territory may well be the catalyst the ECB needs to get real solutions on the table.


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    • become a United States of Europe
      1. turn the ECB into a true central monetary authority like the Fed/RBA/etc
      2. have a central fiscal authority that determines spending and borrowing at that level, not at the sovereign state level
      3. enact multi-trillion Euro stimulus programs, mainly in the South to re employ the long term unemployed and youth unemployed. This could be combined with a debt jubilee or restructuring of most consumer and sovereign debt (and amount to same thing really)

      Anything else is tilting at windmills, may as well break it up and go back to independent states (my preferred long term devolution) or at least let Germany leave and go back to the Mark.

      • become a United States of Europe

        because USofA is doing so great?

        1. turn the ECB into a true central monetary authority like the Fed/RBA/etc
        2. have a central fiscal authority that determines spending and borrowing at that level, not at the sovereign state level
        3. enact multi-trillion Euro stimulus programs, mainly in the South to re employ the long term unemployed and youth unemployed. This could be combined with a debt jubilee or restructuring of most consumer and sovereign debt (and amount to same thing really)

        these are real steps to become USofE:
        1. privatise healthcare, make it 15% of GDP and hire 10 more million health bureaucrats and lawyers so “fix” unemployment
        2. privatise university education and make it for profit – give huge loans to unemployed kids and hire millions of fake doctors to teach these kids some nonsense (helps with money expansion and also fixes unemployment)
        3. inflate housing bubble and expand FIRE sector by few million banksters

        why on this world would Germany want to create USofEurope?

      • migtronixMEMBER

        Why would the rest the Europe want to join?

        Don’t know what you’ve had this morning but that’s a ludicrous suggestion Chris.

        European states will become Switzerland’s before they ever let them selves be reduced to being ruled from Strasbourg or London or Rome.

        I say they should keep whats there but introduce a EURCoin crypto currency for those that choose to bail out of the EURCon…

      • rob barrattMEMBER

        The French in particular would never allow the Germans to dictate anything. They’ll probably face a real right wing surge when every Joe Blow finally realizes that the socialists really have run out of other people’s money. Devolution will rapidly follow.

      • Ronin8317MEMBER

        While I totally agree with the solution, national identity is not something that can be dissolved that easily. Germans won’t pay taxes for the Greeks to have their pension at 50.

      • Quite right Chris. Germany have a weird,outdated, obsession with inflation. To the point where they’d rather steer the EU into deflation than deal with what’s in front of them.

        It is what it is in Europe and the sovereigns need a QE line of credit to get things moving again.

        Get the real economy up and running first, then deal with the fiscal idiocy that has taken place and not the other way round.

        If Germany can’t handle that then let them all go their own ways.

    • Form an economic alliance with Russia and rule Europe (post EU of course). Russia supplies the materials and energy, Germany provides the capital and engineering expertise, and exports back. Strategically, its inevitable anyway. Just get on with it…

      • migtronixMEMBER

        Errr if you ignore the fact Russians and Germans can’t stand each other and are deeply suspicious. You are a dreamer though I’ll give you that. Maybe they can set up that jewish state you keep talking about, say somewhere on the Ukrainian plains perhaps, call it Kazharia …

      • ding ding ding!!! We have a winner here folks. An economic union that makes perfect sense. This is what the USA actually fears most. You can forget about all the hoopla about Russian expansionism and the threat they pose. The USA meddling is really to avoid what makes perfect sense, and that is for an economic marriage between Russia, Germany and to a lesser extent France.

        Their economic ties already run quite deep, and would be deeper still, but for Merkel being a weak leader who won’t tell the US to just p*ss off.

      • Mig – part of that is true, many Russians hate Germans for historical reasons (with good cause – killed 10-15 million of them); but the leaderships of both countries are far more pragmatic. Rising anti-American sentiment in Germany is at an all time high. Bugging Merkel’s phone was possibly a bridge too far. The first person Putin rings internationally is not Obama – its Merkel. East German educated Merkel clearly gets on with Putin far better than her French counterpart, Hollande, or even that clown, UK’s Dave Cameron. Many politicians on the right and the centre are now actively trying to get closer to Russia – in addition many claiming the state of Ukraine doesn’t even exist, and Russia has a right to reclaim a substantial portion of the territory purely on a historical basis (hence the big move against sanctions of any sort). Hell, even that lefti Chancellor Gerhard Schröder, just so happens to sitting on the board of Gazprom… is an active defender of Putin, and Russia during the recent crisis.

        its happening – and its happening right now…

      • I will add a political note to this. A weakening German economy gives Putin greater leverage in Europe. Many in the German political elite, and indeed other member states to the EU already have deep reservations re US led sanctions against the Russia, but are too weak to not bow to US pressure.

        If they ramp up sanctions and Putin retaliates he will sink the Euro economies with him. Sanctions against Russia are not in Germany’s (or other EU states) economic or geopolitical self interest. They support the US sanctions because these countries are run by WEAK leaders.

      • Totally agree RT. Ukraine has the unfortunate distinction of being another country caught in the USA/Russian proxy war, and it’s all because the USA wants global economic and military hegemony. Need some strong leaders in Europe to tell them to stick it. They are foisting policies onto these European nations that are not in their interests.

      • No mate – don’t like any wars. What are they good for – absolutely nothing…

        But they do happen from time to time, unfortunately.

      • migtronixMEMBER

        Pipe dreams all of that, I don’t for a second doubt Europe and the Asian land mass will accelerate trade and development and will work out treaties and organisations as they’ve been doing for millennia.

        The US will be left behind in this, it won’t matter what they think or want and Europe will NEVER become federated ala Australia or the states…

    • Strange Economics

      They need a property bubble. RBA can help (How do you say “We don’t use the bubble word ” in German?)

      time to Introduce negative gearing and unlimited foreign buyers!
      Restrict new land estate releases.

      Give out a NAB $ 1000 credit card with a house loan (front page of The Age today)
      Send some RBA and Australian tax advisers over as an aid package.

  1. Germany shrinks – surprise, surprise… you will see Germany to continue to shrink off and on for the next 30 years…

    • Personally assumed that title referred to steeper than expected population decline, which is what they will get if they don’t continue to expand their list of Gastarbieter suppliers – they have funded German language schools in India for this exact reason.

  2. Europe really only has one thing holding back a much needed restructuring. It’s called the Euro…..

  3. reusachtigeMEMBER

    When I saw the title of this one I thought “Wow, have the Bavarians finally won their independence?”

  4. I also understood this number to be been affected by holiday period in the auto production sector but nonetheless Germany looks to be facing some challenges.

    Little or no recovery in the Eurozone and, more importantly, and slowing in China likely to have continuing dampening effect on German manufacturing exports. Add to this some of the highest energy costs going and you may have a less than rosy outlook.

  5. Population of Germany is shrinking. Negative 1% of GDP growth in Germany is still better (in per capita basis – the only meaningful kind of GDP measure) than our GDP growth of 1%

  6. Retractions of similar magnitude have occurred in Japan and very little reaction from the Ausso-Internet chatter set. I would have thought that each one’s destiny is more influenced by happenings in that enigma they call Japan than the Middle Earth of Germany (which is itself a conglomeration of domains and fiefdoms).

  7. So the USA is doing well then, where the middle class has all but disappeared and the 1% hold even more of the wealth than ever. Nevermind the massive amount of debt that is being swept under the rug and the zero interest rates……

    Sure go on pull the other one…..

    You guys need to lift your game if you want to be taken seriously, or soon enough we are going to start calling this the MB Pascometer mark II

    Chris, this is not a personal dig at you, but there have been some questionable articles out, and the continued calls for lower interest rates just make people laugh and loose respect.

    • Ronin8317MEMBER

      I believe you misread the article, and allowed your prejudice against lower interest rate to see suggestions where none exists.

      First thing : the deposit interest rate for the ECB banks is currently NEGATIVE.

      I don’t believe anyone is advocating lower interest rate than that!!

      For the Euro is to hold together, a wealth transfer from Germany to the rest of Europe is needed. Otherwise, the countries are better off as independent states that can devalue their currency. The ‘Europe common currency’ has been tried over 100 years ago, and the same problem flared up.

      • migtronixMEMBER

        Actually because Draghi won’t let default happen my suggestion to southern Europe is double down! Fuck the krauts

    • I concur 100% AF

      More and more I come here for the amusement factor rather than a serious look at solutions to what ails our once great country.

      The repeated bleating from MB for lower interest rates (regardless of the fact that their calls for Macro tools will never be taken seriously) astounds me considering that lower interest rates around the world are only exacerbating the whole financial cockup that started circa 2008.

      Lower interest rates, more than 40% more debt NOW compared to 5 years ago and a global financial system on its last legs and here at MB we appear to have learnt nothing at all from the mistakes of others.

      Oh well, give some people enough rope and the result will be as expected.

    • Not sure whats the problem here, but I’ll have a stab – and forgive me if the stabbing is a little erratic, I need some lunch.

      1. We’re talking relative comparisons. The US economy is fragile, the middle class hollowed out and indebted to the moon and a myriad of other problems, mainly caused by its imperialism and rotten military-industrial complex. Its just that Europe is worse, for some different and some similar reasons.

      If you think I’m saying “US is great, Fed is awesome” then you all need your heads read.
      Relative comparisons people.

      2. I do not advocate lower interest rates. I advocate debt jubilee or restructuring. In case you havent noticed, there are already ZIRP and NIRP in place in both the US and Europe as Ronin below points out.

      3. For those above shitting on the US of Europe idea – again, this is the IDEAL solution, not the one that is going to happen or the best solution. Again, relative comparisons – Europe would be better off, relatively under a US, UK, Australian, New Zealand etc etc unified fiscal/monetary federal system. Its not rocket surgery.

      4. If the Europeans dont solve their unemployment problem soon – especially youth – then it will be solved for them via conflict. Its not hyperbole, thats how these things get started.

      For mind, I dont think the EU has a viable future and as DE points out better than I can, its a cultural collision that is not going to get better, not withstanding the overarching pessimism and unconstructive criticism that seems to labor these comment threads…

      As I said lunch beckons, Im getting grumpy.

      • migtronixMEMBER

        EUR is banker instrument not an instrument for cohesion.

        Keep EUR introduce a derivative EURcoin. Problem solved, problema apagado, probleme resolu, problem gelost

      • Debt is restrcutured via liquidation, which everyone wishes to avoid due to the obvious ecnomic pain that will ensue. The governments of the world want to pull out of this ecnomic malaise without liquidating debt. Welcome to “phony capitalism” where the downside consequence of debt no longer exists. Seems like an entirely viable system to me.

        As for the US, they gave the debt jubilee to the banks they let grow out of control, instead of the citizenry, where it would have proved more useful.

  8. Interestingly, a lot of high-tech equipment that is used in the industrial sector is developed and manufactured in Germany. Of the stuff that we usually specify to use for instrumentation and actuation of plant (whether its water treatment, aluminium smelting, buildings, mining, oil & gas), maybe 80-90% of this high-tech, high-margin equipment comes out of Germany. The biggest names in the business, Siemens, Schneider, etc. are all German.

    In that respect, I wonder if it’s possible to quantify just how much an industrial downturn in Australia, China, the US, etc. has an effect on Germany’s economy.

      • Don’t see a lot of Philips stuff in my line of work, but then again I am not in healthcare. But still, these are the big vendors that I deal with on a daily basis:

        Endress and Hauser – Swiss
        ABB – Swiss
        Emerson – American
        Rockwell Automation – American
        Schneider Electric – German
        Siemens AG – German
        ifm efector – German
        SEW Eurodrive – German
        Weidmuller – German
        SICK – German
        Pepperl+Fuchs – German
        PILZ – German
        KUKA – German
        OMRON – Japanese
        Mitsubishi – Japanese

        Then you have super specialised gear for high speed synchronous motion, like bottling and paper making, which is like seriously 95% German speciality vendors.

      • migtronixMEMBER

        Yeah I could see that, those krauts ran with the industrialisation thing and as Researchtime noted the other day, didn’t give it up for quids!

    • Jason,

      From a industrial construction perspective there has been about 10 years of epic modernization and market consolidation those names supply.

      My 2c its like commodity’s ramping down, now add a bit of geopolitics and presto… reversion to trend.