This morning has seen a selection of poor economic news in Europe and the UK. If not quite toxic rather unpalatable and let me start with something that I marked you cards about back when the original Germany GDP report was released.
Gross domestic product (GDP) rose by 0.1% in the third quarter of 2024 compared to the second quarter of 2024 – adjusted for price, seasonal and calendar effects. As the Federal Statistical Office (Destatis) further reports, economic growth was thus 0.1 percentage points weaker than reported in the flash report of October 30, 2024
As I pointed out at the time.
Nice swerve by Germany this morning as they announce GDP rose 0.2% in the third quarter but revise the second quarter -0.2% lower to -0.3%! Are you thinking what I am thinking?
Indeed I went further.
This looks a classic of the genre where you announce good figures for the latest period and revise the past weaker and it looks as though it has fooled some.
We have received I think another part of that process as how many places will report the revision today and anyway the main news cycle has moved on? If we look into the detail we see some interesting numbers. For example real wage growth was supposed to boost consumption and it has.
After the decline in the second quarter of 2024, private consumption expenditure adjusted for price, season and calendar effects rose by 0.3% in the third quarter of 2024 compared to the previous quarter.
Plus the German government is spending.
Government consumption also increased by +0.4% compared to the previous quarter.
Which means that something is happening in the German economy that is against the stereotype.
In contrast, investments provided slightly negative impetus: In the third quarter of 2024, 0.2% less was invested in equipment – i.e. primarily in machinery, equipment and vehicles – after adjusting for price, season and calendar effects, and 0.3% less was invested in buildings than in the previous quarter. Both construction and equipment investments had already declined in the second quarter of 2024, but the decline was significantly greater at -2.2% and -3.4% respectively.
If you were desperate for a positive spin you could argue that the rate of decline has reduced considerably. The problem though is that the fall over the half-year is quite substantial. Indeed a previous German strength is clearly in trouble.
As in the first two quarters, significantly less was invested in the third quarter of 2024 than in the corresponding quarter of the previous year. Equipment investments fell by 5.7% in price-adjusted terms compared to the third quarter of 2023, which was due, among other things, to a base effect in new commercial car registrations.
You see they put this down to subsidies.
These rose particularly sharply in the third quarter of 2023 due to the expiration of government funding for commercial registrations of electric vehicles on September 1, 2023.
Energy Problems
It reminds me of this I noted yesterday.
German utility execs are like German car execs. They promoted an unsustainable business model, hoping for government subsidies. Now that Germany is running out of money, they start to panic. They are part and parcel of the establishment responsible for Germany’s decline. ( @Raphfel)
Which followed on from this.
German utility execs who champion the Energiewende are starting to panic after this month’s shocking 12-day wind drought. RWE CEO Markus Krebber posted a desperate plea for more “secure” power supplies this morning on LinkedIn. The situation is coming to a breaking point. ( @energybants)
Again we can go further as we look at the LinkedIn post of RWE CEO Markus Krebber.
In the evening hours of November 6th, the price of electricity rose extremely quickly and extremely sharply — to more than 800 euros per megawatt hour. This made it around ten times more expensive than usual.
He goes onto say it was more than a warning shot.
After all, these high prices are an absolutely reliable indication of the state of supply security in Germany. They are the result of too little supply.
This rather opens an energy can of worms because Germany spent a fortune on Energiewende to arrive at an energy shortage.
So let’s take a look at the figures from November 6th: Demand was around 66 GW. It was covered by domestic production (around 53 GW) and imports (around 13 GW). Almost the entire domestic supply was available (only around 4 GW was not available, which is not unusual). In terms of import capacity, only around 3 GW of interconnector capacity was unavailable (also not unusual).
I think he means domestic supply apart from wind. But even so Germany had extra supply if necessary, but there is a kicker.
In concrete terms, this means that the same situation would not have been manageable on another day with a higher peak load. For example, in January. The highest demand for electricity of the year was on January 15th, at more than 75 GW. Almost 10 GW more than on November 6th!
So at an outright peak they would have run out of supply and had to reduce demand ( by the way reduce demand is modern speak for rationing). Then we get to what I now consider to be the renewables lie.
And in Germany, we have been acting (for years) as if the issue of adding secure capacity is something that can be postponed. Yet we can already clearly see today what happens when we switch off capacity and do not provide any backup for renewables.
Because renewables supporters have been unwilling to admit how unreliable they are they have pushed for policies like this.
The last three nuclear power plants in Germany were shut down on 15 April 2023: Isar 2, Emsland and Neckarwestheim 2. Their shutdown had been planned for 31 December 2022. Due to the energy crisis, the three nuclear power plants continued operation in stretch-out mode until 15 April 2023 at the latest. ( Germany Federal Office)
So they kept them going through last winter because of the energy crisis which begs the question about this year? It seems we are already finding out although the scale of the issue will depend on the weather a bit like the famous Dirty Harry quote.
you’ve got to ask yourself one question: ‘Do I feel lucky?’ Well, do you, punk?
In the meantime we have been fed all sorts of official information assuring us that this year will be better whereas it is only November and there has already been what Taylor Swift would call “trouble, trouble,trouble”.
An interesting debate has taken place in the comments highlighting another renewables problem.
Skywert Intelligence a simple question: when you do not have wind and solar for weeks (i.e. what has just occurred in November), how the hell are you thinking to supply energy to a storage system? You can have and infinite storage capacity but without energy to feed it is useless! Or are you planning to charge BESS systems with the coal or lignite? ( Alfredo Satorado)
Against the scale of the problem here we see that such storage as is feasible and demand management are nowhere near being able to deal with this.
So Germany has two big problems here. Firstly the price of its energy and I would remind you all that right now people will be claiming that renewables are cheap. But in some ways more importantly will there be demand rationing and even blackouts? Once you fear the latter why would you base any new industry in Germany?
The trouble is that Germany as a deliberate policy decided to reduce its resilience here.
Phases in which wind and sun only produce a limited amount of electricity (a so-called Dunkelflaute, or dark doldrums) are normal. And they will always be noticeable, so we need to be prepared.
PMI Survey
The bad news vibe was backed up by this morning’s purchasing managers or PMI release.
Germany’s economic malaise continued into November, with the latest HCOB ‘flash’ PMI® survey, compiled by S&P Global, showing business activity falling for the fifth month running and at the quickest rate since February. Sustained weakness in manufacturing production was compounded by the first decrease in services activity for nine months.
Has the energy news impacted? That is hard to say but it looks like the economy is ending 2024 badly.
The HCOB Flash Germany Composite PMI Output Index registered in sub-50 contraction territory for a fifth straight month in November. Furthermore, slipping from October’s 48.6 to 47.3, the headline index signalled an acceleration in the rate of decline in business activity to the quickest since February.
Along the way the words there pile more pressure on the official claims that the German economy grew in the third quarter.
Comment
In many ways this looks rather like an economic suicide note. On that road the apparent effort to avoid headlines around an economic recession becomes less important and the real issue becomes this.
Gross domestic product (GDP), 3rd quarter of 2024 -0.3% compared to the same quarter of the previous year (price and calendar adjusted)
This is in fact an economic depression. Putting in another way the earliest number for GDP in their table is for the first quarter of 2022 and it was 104.75 whereas in the latest quarter it was 104.66.
Next up is the problems of the ECB which has a bit of a quandary. Because just as the Euro area is heading south according to the PMI numbers which we know they follow. We have also learnt this.
A key gauge of euro-zone wages jumped by the most since the common currency was introduced — complicating the European Central Bank’s plans for interest-rate cuts as inflation eases.
Third-quarter negotiated pay rose 5.4% from a year ago, the ECB said Wednesday. That’s up from 3.5% in the previous three months and was largely driven by Germany. ( Bloomberg)
So at best Germany looks set for Stagflation.Are we revisiting the 1970s?