Economic Key Facts Germany

With a gross domestic product (GDP) of 4.121 billion euros in 2023, Germany is the third-largest economy in the world after the United States and China, and thus also the largest economy in Europe. In particular, the export of motor vehicles and parts as well as chemical products make Germany the third-largest exporting nation in the world. The service sector contributes the largest share to the country's GDP, accounting for 70%.

The EU Commission has lowered its economic forecast for Germany. It now expects the EU's largest economy to only grow by +0.1% this year. In the last forecast, it was still +0.3%.

In the coming year 2025, the economy is expected to have stronger growth again, this may however be slow. A plus of 1.0% is predicted. Both a gradual increase in domestic demand due to rising real wages and a slow recovery in exports will have a positive impact. Investment growth is also expected to recover in 2025. Due to the continued high demand for housing in Germany, the Commission also expects that a recovery in construction will support the situation from the second half of 2024.

According to the ifo-Institute, companies' business expectations also improved further in May 2024 compared to the previous month (+0.7 points). At 90.4 points, the index is at its highest level since April 2023 (91.3 points). In February 2022, i.e. before Russia's invasion of Ukraine, it stood at 97.9 points.

An assessment of Germany as a business location by international investors is shown in our Business Destination Germany 2024 study, for which 350 CFOs of the largest German subsidiaries of international groups from the most important investor countries were asked how they rate Germany as a business location. Our Global Economic Outlook provides insights into global growth prospects, challenges and threats. Our CEO-Outlook 2023/24, for which 1,325 CEOs of large companies around the world, including 125 CEOs in Germany, were surveyed, provides assessments of the economic situation, generative AI, ESG and other current topics.

The current forecasts of German economic research institutes and government organizations on the development of GDP in Germany vary between -0.3% and +0.4% for the 2024 financial year:

In April 2024, German exports rose by +1.6% to EUR 136.5 billion and imports by +2.0% to EUR 114.5 billion as compared to March 2024, adjusted for calendar and seasonal effects.

Sentiment in the German export industry has also brightened. The export expectations published by the ifo-Institute rose to +0.3 points in May 2024, up from -1.5 points in April 2024. "The export industry is not yet developing much momentum overall," said the head of the ifo surveys. Beverage manufacturers are expecting significant growth in export business. The same applies to the furniture industry and the production of glass and ceramics. Manufacturers of data processing equipment, on the other hand, had to cope with a noticeable setback. The very optimistic expectations from the previous month could not be maintained. There was little movement in the mechanical engineering and automotive sectors. The textile and clothing industry, printers and the metal sector are expecting a decline in their exports.

Although global trade and industrial production are likely to increase over the course of the year according to the latest forecast by the "economic experts", German export-oriented companies are still faced with fierce competition, rising labor costs and comparatively high energy costs.

Inflation in Germany rose again for the first time this year in May 2024. Goods and services became 2.4% more expensive on average compared to May 2023.

Energy cost an average of 1.1% less this time than a year earlier, while the price of food rose by 0.6%. Services were 3.9% more expensive. Core inflation remained at 3.0%.

The fact that the inflation rate did not fall further in May is partly due to the Deutschlandticket, which was introduced in May 2023 at a price of 49 euros per month and led to significantly lower prices on local public transport. This special effect has now expired. The higher flight tax introduced at the beginning of May 2024 is another price driver: due to high demand, airlines are passing these costs on to passengers.

The number of companies planning to raise their prices in the coming months also continues to rise: the ifo-Institute's barometer for price expectations rose to 16.2 points in May 2024 (April 2024: 15.2 points). The points indicate the percentage of companies that intend to raise their prices on a balance (percentage of companies that intend to lower their prices minus the percentage of companies that intend to raise their prices). If all companies surveyed intended to increase their prices, the balance would be +100 points. If they all wanted to lower their prices, the balance would be -100.

Current forecasts from German economic research institutes and government organizations on the development of the inflation rate in Germany indicate that the figure will remain at around the current level. The projections for the 2024 financial year vary between +2.2% and +2.7%:

The weak economy has consequences: despite the spring upturn, the number of unemployed fell only minimally by 27,000 to 2.723 million in May 2024. The usual decline for May was therefore comparatively small. The unemployment rate was 5.8%, 0.2 percentage points lower than in the previous month of April 2024. Compared to May 2023, however, the rate has increased by 0.3 percentage points.

Despite the weakening economy, skilled workers are still urgently needed. There is a shortage of skilled workers in almost one in seven occupations in Germany, as shown by the Federal Employment Agency's Skilled Workers Analysis 2023. According to the analysis, there are shortages in nursing and healthcare professions, the skilled trades, professional road transport, childcare, social pedagogy and gastronomy, among others.

German retail sales fell unexpectedly sharply in April 2024, particularly in the food sector. Despite the recent improvement in sentiment, the consumer climate remains at a low level. In addition, leading indicators suggest that the push for private consumption provided by the previously robust job market is likely to continue to wane. Growth expectations rest to a large extent on consumers, whose purchasing power should increase as inflation falls and wages rise.

In April 2024, the greatest savings were made on food, beverages and tobacco products: Sales here fell by 3.7%. At the same time, the savings rate of 14.9% in the first quarter of 2024 clearly exceeded the historical average of 11.0%. According to the ifo-Institute, the business climate in the retail sector improved for the third time in a row in May 2024.

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