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Germany is the fourth largest economy in the world after the United States, China and Japan and the largest economy in Europe. It is the third largest export nation globally: With 70% the service sector contributes the largest part to the country’s GDP.

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Germany could avoid recession

The global economy will weather the consequences of the war in Ukraine and continued high inflation better than initially feared. In Germany, gross domestic product (GDP) is expected to grow by only 0.1% in 2023 - however, this is an increase of 0.4 percentage points on the estimate. Next year, the German economy is then expected to grow by 1.4% - 0.1 percentage points less than previously expected. Contrary to earlier forecasts, Germany could avoid a recession after all.

However, numerous risks such as a further worsening of the Corona situation in China, an escalation of the Russian war of aggression in Ukraine and a debt crisis due to the central banks' tight monetary policy would result in a deterioration of the global economy.

For further insights into global growth prospects, challenges and threats, see our Global Economic Outlook. The views of more than 1,300 CEOs on future global economic developments and other exciting topics such as technology, human resources and ESG are presented in our CEO Outlook.

Biggest slump in German exports since the start of the pandemic

German exports fell significantly in December 2022. The decline compared with November was 6.3% after adjustment for calendar and seasonal effects. It is the sharpest decline since the slump at the start of the Corona pandemic.

For 2022 as a whole, Europe's largest economy's exports rose 14.3% year-on-year to €1.56 trillion. Imports rose by 24.3% to a value of 1.49 trillion euros.

The increases were "largely based on price effects", the German Chamber of Industry and Commerce (DIHK) commented on the figures. As with inflation, the development was mainly due to rising energy prices, it said.

Last year's export balance sheet turned out to be "worse than it seems", said Tanja Gönner, Chief Executive of the Federation of German Industries (BDI).

Germany's once high export surplus has more than halved compared to the previous year and stood at less than 80 billion euros in 2022. According to Destatis, this is the lowest figure since 2000 and the fifth decline in a row.

Inflation remains at a high level

Inflation in Germany remained high at the beginning of the year. Consumer prices rose by an average of 8.7% year-on-year in January.

The increase is probably primarily due to the fact that full budget payments were again payable by gas and district heating consumers in January. In addition, there were no further reductions, but slight price increases for fuels. Only heating oil had provided slight relief in the energy sector.

The inflation rate could also be high again in February. A sustained and significant decline in inflation was expected from March onwards, when gas and electricity price brakes would take effect.

Labor market remains stable

The number of unemployed in Germany rose to 2.62 million in January. That is 162,000 more people without a job than in December and 154,000 more than in January 2022. The unemployment rate thus climbed by 0.3 percentage points to 5.7% compared with the previous month. The increase was "usual for the season". At the beginning of the year, demand for labor had weakened slightly, but overall staffing requirements were stable at a comparatively high level.

Immigration leads to record population

Never before have so many people lived in Germany at the end of a year. Strong immigration boosted the population to more than 84 million at the end of 2022. Compared with the end of 2021, the population increased by 1.1 million. The reason for the strong growth was record net immigration, including war refugees from Ukraine, he said. In addition to the strong immigration of Ukraine refugees, the immigration of people of other nationalities had also increased significantly.

According to the current estimate, 1.42 to 1.45 million more people came to Germany than moved abroad. This means that net immigration in 2022 was more than four times as high as in the previous year (329,163) and higher than at any time since the start of the time series in 1950.

Are you interested in the German market and would like to learn more about Germany as a business location? Stay up to date with our quarterly “Business in Germany” newsletter!

Watch now: Business Location Germany at the KPMG International Business Summit 2022


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