EcoWeek 22-24 // 13 June 2022
economic-research.bnpparibas.com
6
ECONOMIC PULSE
GERMANY: THE IMPACT OF THE WAR IN UKRAINE HAS BEEN MORE PRONOUNCED THAN EXPECTED
The negative prospects for the second quarter of 2022 are no longer a risk as suggested by business surveys, they are now taking concrete shape in
Germany. After the very sharp worsening in the trade balance in March (a 4% decline in exports in volume terms and a symmetrical 4.1% increase
in imports), it barely improved in April and remains at an extremely low level. According to the Kiel Institute’s real-time forecasts, exports probably
fell in May (-1.7% m/m) but will see a slight recovery in June (0.6% m/m). Over the second quarter as a whole, Germany’s trade balance could shrink
to its lowest level since Q2 2001.
These trade difficulties have come against a background where demand addressed to Germany by its main trading partners is falling, as indicated by
another fall in orders received by industry in April (-2.7% m/m). Although order books remain satisfactory, the deterioration since February has been
swift. In addition, the details of this fall are sobering as the biggest drops have come in capital goods (-4.3%), followed by consumer goods (-2.6%),
a sign that consumption is not the only component to be affected but that business investment is now also suffering from the situation, with the
postponement of a number of investment projects.
Supply difficulties also continue to weigh on manufacturing production, which struggled to recover in April (0.4% m/m) and is still well below its
pre-Covid levels (-6.1% relative to Q4 2019). The biggest hit has come in the automotive sector, where, in addition to semiconductor shortages, there
are now bottlenecks in the supply of cable looms which had been supplied by Ukraine. The result of this is that new car registrations continued to
fall in May (-10.2% y/y). Germany’s automotive industry association (VDA) is concerned about the weakness of sales: only 1 million units were sold
in the first five months of the year, 33% below the 2019 figure.
Nor are we seeing better signals in the area of consumption. Although household spending on services is likely to hold up, benefiting from substantial
accrued growth since the relaxation of health protection measures at the beginning of the year, consumption has slipped considerably (retail sales
were down 5.4% m/m in April).
Lastly, the German economy has been hit harder than expected by the repercussions of Russia’s war in Ukraine. At the beginning of the conflict, initial
estimates of the impact of an embargo on Russian energy put the reduction in 2022 growth at around 2 percentage points (Bachmann et al 2022).
In reality, the effect has been much more severe, even though the embargo is not yet effective. The OECD now forecasts GDP growth of only 1.9% in
2
022 and 1.7 % in 2023 in its June economic outlook (compared respectively to +4.1 % and +2.4 % in December 2021).
Anthony Morlet-Lavidalie
GERMANY: QUARTERLY CHANGES
3
-month moving average (actual)
Effective
Exchange Rate
--- 3-month moving average (4 months ago)
6
4
2
0
.0
.0
.0
.0
IFO Business Climate
Manufacturing
Unemployment Rate
Industrial Orders
Core HICP
foreign
-
-
-
2.0
4.0
6.0
GFK Consumer
Confidence
Industrial
Production
New Orders
Construction
Retail sales
IFO Business Climate
Trade
IFO Business Climate
Construction
IFO Business Climate
Services
SOURCE: REFINITIV, BNP PARIBAS
The indicators in the radar are all transformed into ‘z-scores’ (deviations from the long-term average, as standard deviations). These z-scores have mean zero and their values
are between -6 and +6. In the radar chart, the blue area shows the actual conditions of economic activity. It is compared with the situation four months earlier (dotted-line). An
expansion of the blue area compared to the dotted area signals an increase in the variable.
The bank
for a changing
world