Economic Key Facts Germany

With a Gross Domestic Product (GDP) of 4,186 billion Euros in 2023, Germany is the third-largest economy in the world after the United States and China, making it Europe's largest economy. It is the exports of motor vehicles and parts as well as chemical products that have strengthened Germany up to become the third-largest exporting nation in the world. With a 70% share of the GDP, the service sector contributes by far the largest share of the country's economy.

In addition, Germany is a top destination for investors, attracting an ever increasing number of companies to make greenfield investment there. As the largest economy in Europe, Germany entices its investors with its central-european location, but simultaneously puts them off with the current deterioration of Germany's situation as an economic destination. 

After a decline in gross domestic product (GDP) of -0.1% in 2024, the so-called "Wise Men of Economics" now do not expect the German economy to grow noticeably in 2025 either. The German Council of Economic Experts (Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung - SVR), which advises the German government, expects only a small increase of just +0.4%, significantly lowering its forecast from the spring. In May, the five-member council had still forecast growth of +0.9% for 2025. The decline in production and value added in industry as well as the fall in investment are particularly responsible for the significantly lower outlook. Private consumption is also failing to gain momentum, as the savings rate remains high.

The other economic research institutes have also significantly lowered their forecasts for the current year 2024 and the coming year. The majority assume that Germany will also experience a decline in economic output this year following the recession in 2023. Only minimal growth is also expected in 2025.

According to the ifo Institute, companies' business expectations also deteriorated slightly in November 2024 compared to the previous month (-0.1 points). However, at 87.2 points, the index is still at a significantly higher level than at the beginning of the year (January 2024: 83.9 points). In February 2022, i.e. before Russia's invasion of Ukraine, the index was still at 97.9 points.

The government spending ratio, which indicates the government's influence on an economy, is calculated as total government spending as a percentage of GDP. According to the International Monetary Fund, Germany's ratio was 48.3% in 2023, slightly below the EU average of 49.3%; however, other major economies such as the UK (44.7%), the USA (38.1%) and China (33.9%) were significantly lower.

According to the OECD, the share of tax and social security contributions in total labour costs for average earners was 47.9% for singles without children in Germany in 2023. This puts Germany in second place among the 38 OECD member states after Belgium and well above the OECD average of 34.8%. It is also significantly lower in countries outside the EU, such as the UK (31.3%) or the USA (29.9%), and has a positive impact on their attractiveness as an investment location.

Our Business Destination Germany 2024 study provides a current assessment of Germany as a business location by international investors. 350 CFOs from the largest German subsidiaries of international corporations from the most important investor countries were surveyed as part of the study to find out how they rate Germany as a business location. As this is the fourth time the study has been published every two years, it also contains insightful trend statements.

Our Global Economic Outlook also 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 were surveyed, including 125 CEOs in Germany, also provides assessments of the economic situation, generative AI, ESG and other current topics.

The current forecasts of German economic research institutes and government organisations on the development of GDP in Germany currently fluctuate between -0.2% and +/-0.0% for the 2024 financial year:

Calculations by the German Economic Institute (IW) show the extent to which Trump's announced punitive tariffs could affect the entire German economy. Depending on the scenario, the economists expect the damage to be between 130 and 180 billion euros within the four-year term of office. That would be four per cent of Germany's total economic output.

German exports slumped in October 2024. Exports fell by -2.8% compared to the previous month to 124.6 billion euros. Exports were also down -2.8% compared to October 2023. Imports were also -0.1% below the September figure at 111.2 billion euros. Compared to the previous year, however, imports increased by 1.7%. The surplus in the trade balance thus fell from 16.9 to 13.4 billion euros in October 2024 compared to the previous month. Most German exports in October 2024 again went to the United States (-14.2% compared to September 2024), while most imports again came from China (-3.0% compared to September 2024).

Real (price-adjusted) new orders in the manufacturing sector fell by -1.5% in October 2024 compared to September 2024, adjusted for seasonal and calendar effects. For September 2024, a revision of the preliminary results showed an increase in new orders of +7.2% compared to August 2024 (preliminary value: +4.2%). The comparatively high revision in September 2024 is due to a subsequently reported major order in shipbuilding. The overall result in October 2024 is also strongly characterised by large orders in shipbuilding.

In other manufacturing sectors, the development of incoming orders in October 2024 differs greatly. The overall negative trend in incoming orders is mainly due to the declines in mechanical engineering (-7.6%) and the automotive industry (-3.7%). Growth in metal production and processing (+10.2%) and the manufacture of data processing equipment, electronic and optical products (+8.0%) had a positive impact on the overall result.

According to calculations by the Ifo Institute, German exports to the USA could fall by -15% as a result of the announced punitive tariffs. German car exports to the USA would be particularly hard hit at -32% and pharmaceutical exports to the USA at -35%. Foreign trade with China could also fall by 10% as a result, as Chinese companies would have less demand for German intermediate products due to lower exports to the USA.

The German inflation rate rose again in November. The price of goods and services rose by an average of +2.2% compared to the same month last year. In October, the inflation rate had already risen to +2.0%, after falling to its lowest level in over three and a half years in September at +1.6%. Consumers had to pay more for services such as package holidays and insurance in particular. These again increased in price by +4.0% compared to the same month last year. Food cost +1.8% more, while energy fell by -3.7%. The core inflation rate also rose again to +3.0%.

By contrast, the number of companies planning price increases in the coming months fell slightly in November 2024: the ifo Institute's barometer for price expectations rose to 15.6 points in November 2024 (October 2024: 16.0 points).* This is primarily attributable to the manufacturing industry and service providers.

*The points indicate the percentage of companies that intend to raise their prices on balance (percentage of companies that intend to lower their prices minus the percentage of companies that intend to raise their prices). If all the 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 by German economic research institutes and government organisations on the development of the inflation rate in Germany indicate that the value will remain at around the current level. For the calendar year 2024, the projections vary between +2.1% and +2.4% and for 2025 between +2.0% and +2.3%:

Trump's election is also likely to lead to a renewed rise in inflation. Higher US tariffs will strengthen the dollar against the euro, which will drive up inflation. In addition, the EU could impose tariffs on imports from the US in response to US tariffs. This would also increase inflation. Overall, inflation in the eurozone and in Germany could then be up to half a percentage point higher in 2026, according to Commerzbank's calculations.

The weak economy continues to weigh on the labour market: although unemployment and underemployment fell in November, the declines were small. Compared to the previous month, unemployment fell slightly by 17,000 to 2.774 million people. However, this is still 168,000 more than in the previous year. The unemployment rate fell by -0.1 percentage points to 5.9%. On the other hand, short-time work increased significantly. The Federal Employment Agency had to pay out 726 million euros in short-time working benefits. This is more than twice as much as had been estimated in the budget.

The demand for labour has also continued to fall. In November, the employment agencies had 668,000 job vacancies. That is 65,000 fewer than a year ago. While employment in the public sector is growing, jobs are increasingly being cut in the commercial sector.

According to the Leibniz Institute for Economic Research Halle (IWH), the number of insolvencies of partnerships and corporations in Germany jumped to 1,530 in October. This is +17% more than in the previous month and +48% more than in October 2023. The current figure is also +66% higher than the average October figure for the years 2016 to 2019, i.e. before the coronavirus pandemic. The last time more insolvencies of partnerships and corporations were registered in an October was in 2004.

The reasons for this are the ongoing phase of economic weakness, which is accompanied by a sharp rise in wages, non-wage labour costs and energy costs, as well as catch-up effects from the pandemic and delayed adjustments of the economy to new structural conditions.

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