Germany is the most important country in Europe, with a 3996.76 billion dollars GDP in 2018, as well as one of the largest current account in the world. But at the moment Germany is slowing considerably. In this post we’re going to analyze few data about Germany and what it means for ECB policy.
The manufacturing PMI in this case can give us a really big help in understanding what is happening in Germany at the moment, first let’s be clear, the manufacturing sector in Germany is one of most critical in Europe as well as being fundamental compared to other sectors as you can see:
If we take a look at the manufacturing PMI the situation seems dramatic:
The country PMI dropped below 50 in February, remember that a number below 50 means contraction, and since than the numbers went down even more touching 43.1 few days ago. I would say that this is not a good sign.
How we got there? Well, the German economy is mainly driven by export and since 2018 we saw the world trade volume slowing down, due also to the trade war between China and the US which touches every single country in the world. To give you an idea let’s take a look to the export YoY:
We are at the same level of 2008, 2013 and 2015, If this situation continue we can drift lower, and most importantly the German economy is mainly based on export with no internal demand, if anything go wrong the country would be in a dangerous situation.
Moreover, the German GDP will contract soon as the following chart from Nordea illustrates:
And the IFO index, which measures the business climate it’s worsening every month.
In the meanwhile, the 10 year Bund dropped into negative territory:
And given the actual situation of the economy super Mario D will have to start QE again from September and maybe cut interest rates by 10 bps.
Pulsar Finance 