Global Economic Outlook Q2 2024

Geopolitical uncertainty is elevated, with nearly half of the world’s population already voting or heading to the polls this year. Hot wars and trade tensions are flaring, which could fuel more isolationist policies. The resulting risk is more frequent bouts of inflation and activist monetary policies.

Germany: After last year's recession, stagnation expected for 2024

The German economy finds itself in a challenging situation in 2024. After a 0.3 percent decline in economic output in 2023, the economy has now stopped contracting, but a strong economic upturn is not yet in sight. Private households are still reluctant to spend significantly, and industry and the construction sector are only recording a small number of new orders. The German export economy has also cooled down.

However, developments in the first quarter of 2024 give cause for hope. Gross domestic product grew by 0.2 percent from January to March compared to the previous quarter. Over the course of 2024, the German economy could gain some further momentum. Private consumption is expected to support the economy over the course of the year, as real incomes are likely to notably rise.

Inflation in Germany is also likely to slow further. After reaching 5.9 percent in 2023, the inflation rate has recently stabilized at a low level of just above the ECB's target of two percent. The two main drivers of inflation in Germany, the cost of energy and food prices, have stabilized.

Sentiment among German companies and consumers is improving

Business sentiment in the German economy brightened again in April and is at its best since May 2023. The “Business Climate Index” has risen for the third consecutive time, showing that companies are increasingly optimistic about the future. This development could indicate an economic turning point for the better.

The mood among consumers is also slowly brightening. The "Consumer Climate Index" rose by 3.1 points to -24.2 points in April of this year compared to the previous month – the highest value over the last two years. The rise in consumer climate is particularly due to wage and salary increases in conjunction with a recent fall in inflation. This forms the basis for increasing purchasing power among private households.

Growth potential amidst existing challenges

In addition to the economic difficulties, Germany continues to face a variety of structural challenges, such as a shortage of skilled workers, a high level of bureaucracy and a weak digital infrastructure. Nevertheless, there are also positive prospects. Germany has a traditionally strong economy, a well-educated population and a long tradition of innovation and research. Major current transformation initiatives, such as the transition to renewable and sustainable energy (“Energiewende”) and further digitalization, offer opportunities for additional growth. New technologies, such as artificial intelligence (AI) and robotics, also open up immense opportunities for increasing productivity and developing new products and services.

You can find monthly updates on Germany as a business location here.