Germany is a land of soaring house prices and yet banks do not want your cash

by Shaun Richards

This morning has brought a flurry of news from the economic heart of the Euro area and it opens with something not on the normal menu.

WIESBADEN – According to first provisional data on German exports to the United Kingdom, the January 2021 figures are expected to show a significant decline compared with the same month a year earlier. The Federal Statistical Office (Destatis) also reports that German exports decreased by roughly 30% compared with January 2020, according to provisional calculations. Based on an extrapolation, exports to the United Kingdom continued to decline in January 2021 due to Brexit effects, after the year 2020 was characterised by the coronavirus pandemic.

Apparently the Coronavirus pandemic was over by the beginning of 2021 or at least the economic effects were.Odd when they have a special site for it. Today’s release looks to have come straight from a German version of Yes Prime Minister or perhaps one of Kylie’s hits.

I’m spinning around, move out of my way
I know you’re feeling me ’cause you like it like this
I’m breaking it down, I’m not the same
I know you’re feeling me ’cause you like it like this

If we look back we were described as a special situation last January as well.

In January 2020, goods to the value of 5.9 billion euros were exported to the United Kingdom (-16.3% compared with January 2019) and goods to the value of 3.6 billion euros were imported from the UK (+14.5%).

So the decline is compounded and it seems that this January Germany was down by around 1.8 billion Euros in export terms. I also note that there is no mention of imports at all as most would surely be also wondering what happened there? Anyway returning to exports Germany exported some 1205 billion Euros last year and had a surplus of 179 billion. If we think of it in export terms it went back to 2016 or if we think of it in surplus terms it went back to 2008 or somewhere between 2011/12 in the Euro area crisis.

So we have reminded ourselves of the German trade surplus which is in essence the Euro area one. Also that it had a setback in 2020 but even so was still at the level ( 2008) that was considered to be one of the imbalances that helped create the credit crunch. Before we move on it is also a basic support for the value of the Euro as it creates demand for it.

The Labour Market

This also has long been a German success and if we look at the Coronavirus pandemic has seen many countries take a German like attitude to policy on it. The German Labor Office has brought us up to date this morning.

At 2,904,000, the number of unemployed is slightly 4,000 higher than in the previous month. Seasonally adjusted, it rose by 9,000. As in January, the unemployment rate was 6.3 percent. Compared to February last year, the number of unemployed has increased by 509,000. The unemployment rate recorded a year-on-year increase of one percentage point.

So unemployment has nudged higher on a monthly basis and is up considerably on a year ago. They also have a go at estimating underemployment.

Underemployment, which also takes into account changes in labor market policy and short-term incapacity, stood at 3,692,000 people in February. That was 359,000 more than a year ago.

However we have a familiar issue which needs to come into the context.

According to preliminary extrapolated data from the Federal Employment Agency, cyclical short-time working benefits were paid for 2.39 million employees in December. The use of short-time allowance had gradually decreased from the previous high in April of almost 6 million, but rose again in November with the renewed containment measures.

As you can see the unemployment number has two contexts. The first is the headline and the second is the amount of support required to keep it at that level. If we use the underemployment number as a type of ersatz measure we end up with an unemployment rate of 8%.

In many ways we have the same problem with seeing how many are receiving unemployment benefits.

1,092,000 people received unemployment benefits in February 2021, 203,000 more than a year ago. The number of employable beneficiaries in the basic security for jobseekers (SGB II) was 3,867,000 in February. Compared to February 2020, this was an increase of 108,000 people. 7.1 percent of people of working age living in Germany were therefore in need of help.

Staying with the concept of unemployment the International Labor Organisation has failed us utterly,

The unemployment rate determined by the Federal Statistical Office according to the ILO employment concept was 4.6 percent in January.

Switching to employment we go back a month in time.

The seasonally adjusted number of persons in employment rose slightly by 14,000, or 0.0%, in January 2021 compared with the previous month. The number of persons in employment thus is still markedly below the pre-crisis level. On a seasonally adjusted basis, the number of persons in employment in January 2021 was down by 1.6%, or 726,000, on February 2020, the month before restrictions were imposed due to the coronavirus pandemic in Germany. ( Statistics Office )

The rise relies on the seasonal adjustment at a time when events have taken a different path to normal or rather what we previously regarded as normal.Oh and “the Coronavirus pandemic in Germany” seems to be back.

Borrowing and Debt

After reading the above you will not be surprised to learn that the fiscal deficit came back into being in Germany and then rose and rose.

The Federal Statistical Office (Destatis) also reports that the comparatively large increase in public expenditure combined with the decline in revenue resulted in a cash deficit, as defined in public finance statistics, of 157.1 billion euros in the period from January up to and including September 2020.

There are lots of context to this but let me bring this right up to date as in this morning.

Germany sets 0% coupon on new 15yr bund to be sold on Wednesday – Bundesbank ( @PriapusIQ)

We do not know how that will go but coupons are a better guide to the state of play at the time than you might think. Issuing does not cost Germany money and overall it is in fact paid for new borrowing.

House Prices

There is a consequence from the negative interest-rates and bond yields noted above.

WIESBADEN – The prices of residential property (house price index) in Germany were an average 7.8% higher in the third quarter of 2020 than in the same quarter of the previous year. The Federal Statistical Office (Destatis) also reports that the prices of dwellings and single-family and two-family houses were up 2.9% compared with the previous quarter.

In fact the statistics office really rather rams it home.

Thus the prices of residential property continued to rise markedly in both cities and rural areas during the continuing corona pandemic.


Germany is or is not still struggling from the Coronavirus pandemic depending on which of today’s official releases you read. But let me point out another feature of economic life in Germany. We are finding another consequence of sustained negative interest-rates.

Flushed with deposits, German banks are charging customers negative rates. In response, some are taking their money to other parts of Europe, from Italy to Latvia. ( @kowsmann )

It is hard not to have a wry smile at something which for now is the opposite of what one might have expected! Negative interest-rates might have been expected to cause a bank run of sorts and that was the reason banks refrained for so long from passing them on. But there have been two recent developments. Firstly the system is now awash with liquidity with the M1 money supply measure in the Euro area over 10 trillion Euros and rising at an annual rate of 16.4%. Also the furlough schemes have put money in people’s pockets or rather bank accounts meaning the banks have seen a flood of money. So in the future economic historians will be pointing out that negative interest-rates can lead to more saving. But of course we were well ahead of them.

Oh, what a tangled web we weave, When first we practice to deceive! ( Sir Walter Scott)


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