Germany can be considered as the barometer for Europe since it has the largest economy in Europe. With a strong base in manufacturing and leadership position in industries such as chemicals Germany’s economy growth is critical for Europe as well the rest of the world.

In an article titled Germany’s Export Champions Slammed by Economic Crisis  Der Speigel says that there is no recovery yet in the manufacturing sector. Southern  Germany, home to many engineering and auto parts manufacturer, has been especially hit hard since they depend highly on exports.  Export orders have plunged anywhere from 30 to 50%.

From the article:

Is there any glimmer of hope? “I don’t think so,” says Peter Zimmermann, the CEO of Mink, a company based in the town of Göppingen near Stuttgart. A family business in its sixth generation, Mink is the world market leader in specialized industrial brushes. Zimmermann is incensed when he hears people say that the worst is over. “This isn’t a crisis,” he says. “It’s a catastrophe.”  (emphasis added)

Exports:

Source: DerSpiegel

The GDP contracted sharply as shown in the graph below:

Source: Federal Statistical Office

The GDP in 1Q,2009 was 3.8% lower then the GDP in 2008 for the same period and the downtrend acclereated relative to 4Q, 2008.

Foreign Trade

Source: Federal Statistical Office

Related ETF:
iShares MSCI Germany Index (EWG)

In the first six months of this year China’s GDP grew by 7.1% on year-over-year basis as per the latest data released by the National Bureau of Statistics of China yesterday.

Economic growth by quarters:

1st Quarter, 2009 : 6.1%
2nd Quarter, 2009 : 7.9%

The main reason for the strong growth was the government’s massive 4-trillion-Yuan ($586 billion) stimulus program. In a statement announcing the latest figures, the Bureau said:

“all regions and departments effectively implemented the policies and measures set by the central government on fighting against the global financial crisis and promoting the sound and fast growth of national economy, overcame the difficulties in the progress, the national economy stabilized to recovery with increasing positive changes“

Last year when the stimulus program was announced there were many skeptics in the West who questioned the strategy, the validity of the huge amount announced, etc.However the stimulus program primarily focused on infrastructure is working and the government is also stimulating domestic consumption by offering subsidies for consumer goods such as washing machines to folks in rural areas.  The idea behind these moves is to make the Chinese economy less dependent on foreign exports and more dependent on local demand.

Foreign trade is still down. Exports in the first six months fell by 21.8%  and imports was down 25.4%.Unlike many other countries, China has a trade surplus. It stood at US $96.9B.

A few other key takeways from the stat report  include:

• The income of urban and rural residents continued to grow with large increase in transfer income
• The industrial production picked up quickly, and the decreasing rate of profits made by industrial enterprises slowed down
• Investment in fixed assets enjoyed fast growth with improved investment structure
• Sales on domestic markets continued to accelerate, with higher growth rate at or below county level than that in cities
• The money supply grew rapidly with sharp increase in loans of financial institutions

Related to the last point, the  growth of money supply (M2) was 28.5% on a year-over-year basis for the first two quarters as financial institutions increased lending due to the stimulus program.

Finally the report added a note of caution saying “The base for recovery is still infirm, the momentum for picking up is unstable, the recovery pattern is unbalanced, and thus there are still uncertain and volatile factors in the recovering progress.”

Related ETF :

iShares FTSE/Xinhua China 25 Index Fund  (FXI)

There are no signs of economic recovery in-spite of some folks talking about green shoots for the past few weeks. The following chart about retail sales reinforces this point.

Source: The Wall Street Journal

Last month there was a minor upturn in auto sales after many months of drastic declines. And gas prices  rose last month as the price of crude went up. Hence the Journal says “U.S. retail sales rose in June, but mostly because of higher gasoline prices and volatile auto sales, the Commerce Department reported Tuesday. Meanwhile, businesses continued to slash inventories.Retail sales climbed 0.6% in June from a month earlier on a seasonally adjusted basis to $342.1 billion, according to the Commerce Department. Excluding gas and autos, retail sales actually declined for the fourth consecutive month.”

The left part of the above chart clearly shows that sometimes charts can be misleading at face value.A few months of consistent upturn in retail sales and other variables are needed before we can come to a conclusion on the direction of the economy.