Germany: Still in the twilight zone - ING

The ING Bank analysts offer a detailed review of the German economic data released in this week.

Key Quotes:

“This week’s data releases suggest that domestic demand has further weakened but is not faltering, yet.

Seasonally-adjusted unemployment resumed the trend of gradual increases, witnessed throughout the entire year, in October. However, in seasonally-unadjusted terms, unemployment dropped, pushing the unemployment rate down to 4.8%, the lowest level since November 2018.

At the same time, headline inflation remained unchanged at 0.9% year-on-year in October, once again bringing back memories of Mario Draghi’s past comments that “with low inflation you can buy more stuff”.

This is exactly what German retail sales showed yesterday. Admittedly, one of the most volatile macro data but the increase in September, particularly the increase of some 0.6% quarter-on-quarter when looking at the third quarter, suggests that domestic demand should have been growth-supportive in 3Q.  

The German economy has clearly lost its glamour, it is also not performing bad enough to trigger a political reaction. Like it or not.

The German economy will first have to leave the twilight zone. If it gets out as a monster, fiscal stimulus will be on the cards. If it gets out with a mild rebound, the international calls for fiscal stimulus will continue meeting deaf ears.”