Germany is often described as the
"powerhouse" of Europe, but the health of the
world's fourth largest economy is not as rosy as
most people think, according to one economist.
"The crack in Germany's economy has become
most evident in consumer spending. Retail sales
volumes have slowed consistently since growth
rates peaked in mid-2015. They have crashed in
the last six monthly reports," Carl Weinberg,
chief economist at High Frequency Economics,
said in a note earlier this week.
Hard data shows that Germany's economy has
been facing problems for at least the past six
months, despite an uptick in growth at the end
of last year. At the same time, income has been
slowing dramatically and the reasons behind
this are far from clear.
"As domestic demand is imploding, so is foreign
demand," Weinberg added. "Exports are flat
year-on-year. This is not to say that net exports
are not rising. However, the flat gross exports
mean industrial output to make goods for export
is not growing."
"Without growth of either exports or domestic
consumer spending, industrial production has
stalled," Weinberg said.
On Tuesday, data showed German industrial
new orders dropping by 7.4 percent on the
month in January – the biggest monthly fall
since 2009. According to Reuters, a breakdown
of the January figures showed a drop of 10.5
percent in domestic demand and a contraction
of 4.9 percent in foreign orders.
However, industrial production data released
Wednesday gave some relief to analysts and
investors. Industrial production rose by 2.8
percent on the month after contracting 2.4
percent in December.
Carsten Brzeski, chief economist at ING, said in
an email on Wednesday that "the increase in
industrial production shows that the shocking
drop in December was mainly driven by the
Christmas season and the cold winter weather.
At the same time, however, the fact that on the
year industrial production has remained flat
shows just how difficult it is for the industry to
get out of stagnation."
Looking at the hard data, Weinberg concluded:
"Germany's real economic indicators are
faltering. A clear crack in the trajectory is
evident. Those are the facts. Invest
accordingly."