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, 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. 

The ifo Institute has raised its forecast for the growth of the German economy for the current year 2024. The gross domestic product is expected to increase by 0.4% instead of the 0.2% forecasted in March. The second half of 2024 is expected to perform significantly better than the first due to the recovery of global trade and industrial production. At the same time, inflation is likely to subside, and the purchasing power of private households will continue to strengthen. Other economic research institutes also raised their forecasts for the current year in June (see figure).

According to the ifo Institute, business expectations of companies deteriorated in June 2024 compared to the previous month (-1.3 points). However, the index remains significantly higher at 89.0 points than at the beginning of the year (January 2024: 83.4 points). In February 2022, i.e., before Russia's invasion of Ukraine, the index 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 for the development of GDP in Germany vary between +/-0.0% and +0.4% for the fiscal year 2024:

In May 2024, the exports of German companies faced the sharpest fall since December 2023; and compared to April 2024, exports had decreased by -3.6% to 131.6 billion Euros, adjusted for calendar and season. Imports faced an even greater decrease, falling by -6.6% to 106.7 billion Euros when compared to the previous month. Compared to the same month last year, May 2023, exports fell by -1.6% and imports by -8.7%.

Within the EU, exports remained relatively stable with a decline of 2.5%. Exports to the most important single market, the USA, also fell by just 2.9%. However, there was a significant drop in exports to China, with a decline of 10.2%. During the same period, however, imports from China increased by 1.7%.

But it's not just the German export industry that is entering the second half of the year having lost its momentum. Incoming orders in the manufacturing sector also fell by -8.6% in May 2024 compared to the same month last year, May 2023, and by -1.6% compared to the previous month, April 2024. This is the fifth consecutive decline seen. Weak demand from abroad, particularly from countries outside the eurozone, does not point to any significant improvement regarding order levels in German industry in the near-forseeable future.

After rising to 2.4% in May 2024, the inflation rate in Germany fell back down to 2.2% in June 2024. In specific, energy prices decreased by 2.1% year-on-year in June 2024. Food prices increased by 1.1%. Services remain the main driver of price increases, rising by 3.9%. Significant price hikes were particularly noted in the hospitality sector.

The number of companies planning to raise their prices in the coming months also declined in June 2024: The ifo Institute's price expectations barometer fell to 15.9 points in June 2024 (May 2024: 16.1 points). The points indicate the percentage of companies intending to raise their prices on balance (percentage of companies intending to raise their prices minus percentage of companies intending to lower their prices). If all surveyed companies intended to raise their prices, the balance would be +100 points. If all intended to lower their prices, the balance would be -100.

Current forecasts from German economic research institutes and government organizations for the development of the inflation rate in Germany indicate that the rate will remain at roughly the current level. Projections for the fiscal year 2024 range between +2.2% and +2.7%.

The stagnation in the job market continued in June 2024. The number of unemployed people increased by 4,000 compared to the previous month, reaching 2.727 million. Compared to the same month last year, this means an increase of 172,000 people. Usually, unemployment falls in June due to seasonal related factors. This did not happen this year. Many companies remain cautious about new hires.

While in previous years, special effects such as the COVID-19 pandemic played a role, the Federal Employment Agency attributes this year's increase in unemployment almost exclusively to economic factors.

The number of corporate insolvencies in Germany increased by almost 30% in the first six months of the year compared to the previous year due to the weak economy. The credit agency Creditreform recorded around 11,000 company bankruptcies. The last time there were this many insolvencies was in 2016. The service sector was particularly affected, registering 6,500 bankruptcies, an increase of nearly 35%. There was also a significant rise in insolvencies in the trade sector (+20.4%), the construction industry (+27.5%), and the manufacturing industry (+21.5%). Insolvencies among larger companies are significantly higher than in previous years.

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