Growth in exports to the United States (Germany's biggest export customer) has continued to drive German foreign trade in recent years, while trade with the eurozone and China has been relatively stagnant. For the past four months, however, the German PMI for export conditions has been above the threshold of 50 (albeit lower in June at 50.8 than in May at 51.9), suggesting a more global dynamic.
At the same time, domestic demand is showing no real signs of improvement. New factory orders confirm the dichotomy between tepid demand in Germany and encouraging signs from the eurozone. At the same time, according to the GFK index, household confidence has remained fairly stable at a low level for one year (-21.8 in June 2024 compared with -25.2 a year earlier), a long way from the February 2022 level (-6.8). This lack of a rebound may seem paradoxical in view of the sharp fall in inflation (2.5% y/y in June 2024 compared with 6.8% y/y a year earlier according to the harmonised index), but less so in view of the labour market.
Against a backdrop of labour shortages and weak industrial production, Germany is struggling to create as many jobs as in the past: 180,000 a year on average between 2018 and 2023, compared with 430,000 a year between 2005 and 2018 (and 28,000 in Q1, while France had 75,000). The unemployment rate rebounded to 6% in June 2024 from a low of 5% in May 2022 and in the pre-pandemic period.
Over the first five months of 2024, industrial production benefited from the relative upturn in chemicals (+2.5% y/y), which was less affected than in the past by energy prices, but suffered from the downturns in automotive production (-7.7% y/y) and construction (-3.5% y/y), which also weighed on inputs for these sectors (including metallurgy). While the high level of interest rates is playing a role, the end of subsidies for the purchase of electric vehicles is weighing on registrations of this type of vehicle (-16.6% y/y in H1).
The dichotomy between positive signals from exports and persistently sluggish domestic demand underpins our forecast of stable growth in Q2 (+0.2% q/q, as in Q1), after -0.5% in Q4. The level of activity in Q2 2024 should remain slightly below that of Q3 2023.
Article completed on 17 July 2024
