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 German government's assessment of the economic outlook for Germany is slightly better than at the beginning of the year. The forecast for economic growth this year was raised by 0.1 percentage points to 0.3% in the spring projection. Falling energy prices, lower inflation rates, monetary easing and a recovering global economy, from which the export-oriented German economy is benefiting, should ensure a recovery for both private households and industry. Private consumption in particular, which is driven by rising real wages and a stable labor market, is expected to provide important impetus for growth.

According to the ifo Institute, companies' business expectations also improved further in April 2024 compared to the previous month (+2.2 points). At 89.9 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.

Despite the positive signals, the structural problems remain. The German government must continue to work on strengthening Germany as a business location in order to achieve higher growth again in the medium and long term.

Our Business Destination Germany 2024 study provides an assessment of Germany as a business location by international investors, while our Global Economic Outlook offers 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 economic research institutes' current forecasts for GDP growth in Germany vary between -0.5% and +0.7% for the 2024 financial year.

German exports rose surprisingly strongly in March 2024 due to strong demand from the USA and China. They increased by 0.9% compared to the previous month of February 2024 to 134.1 billion euros. Exports also increased by 1.2% compared to March 2023.

However, the mood in the German export industry remains gloomy. The good growth prospects in the global economy have not yet been reflected in additional orders for the German economy. Instead, the export expectations published by the ifo Institute fell to -2.0 points in April 2024, down from -1.4 points in March 2024. Manufacturers of data processing equipment are expecting a significant increase in export business. The same applies to furniture manufacturers and the production of glass and ceramics. A decline was recorded in the food industry, where the optimistic expectations from the previous month could not be maintained. The same applies to the automotive sector. In the mechanical engineering sector, exports are expected to remain stable. The textile industry, printers and metal producers and processors are expecting a decline in exports.

Inflation in Germany remained stable in April. In March 2024, it had already fallen to its lowest level since April 2021 at 2.2%. At that time, it was 2.0%. In December 2023, the inflation rate was still 3.7% and had been falling steadily since then.

Despite the expiry of the price brakes for energy products at the beginning of the year and the CO2 price increase for fossil fuels such as fuels, heating oil and natural gas, which also took effect from January 2024, energy prices have continued to fall. Food prices, which were also a main cost driver, only rose by 0.5% compared to April 2023.

According to experts, inflation is unlikely to fall any further in the coming months, remaining at just over two percent. More companies are planning to raise their prices in the coming months than in March 2024: The ifo Institute's barometer for price expectations rose to 15.1 points in April 2024 (March 2024: 14.3 points). 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 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 economic research institutes on the development of the inflation rate in Germany indicate that the rate will remain at around the current level, fluctuating between +2.2% and +3.0% for the 2024 financial year.

The number of unemployed people in Germany only fell by around 20,000 to 2.750 million in April 2024 compared to the previous month. Compared to April last year, however, this is 164,000 more people. The unemployment rate remained unchanged from March at 6.0%. Compared to the same month last year, the rate has increased by 0.3 percentage points. The persistently weak economic environment is dampening the overall robust labor market and means that the spring upturn this year will only be slight.

Despite strong demand for housing, the number of building permits last year fell to its lowest level since 2012. In 2023, the construction of 260,100 apartments was approved, which is 26.6% or 94,100 apartments less than in the previous year. The last time the figure was lower was in 2012, when 241,100 apartments were approved.

This also fell far short of the target of 400,000 new homes per year originally set by the German government. Expensive materials and more expensive financing than in previous years are deterring potential private builders and investors. The German Institute for Economic Research (DIW) also assumes that the German government's target of around 265,000 apartments will once again not be achieved in 2024.

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