Germany remains stuck in recession
Industrial production set to fall for third successive year
▪ The Germany economy is in its second year of continued contraction. We expect real economic output in 2024 overall to drop by 0.1 percent.
▪ Among the major EU member states, Germany alone has not yet managed to recover from the pandemic and the energy price shock. While Germany’s economy has more or less stagnated since late 2019, in France, the economy has grown more than four percent, in Italy, more than five percent, and, in Spain, more than seven percent.
▪ Manufacturing output is heading for its third consecutive downward year. From January to October 2024, manufacturing output was already more than four percent down on the same period last year.
▪ German foreign trade has not managed to benefit from the pick-up in world trade. We expect German exports this year to decrease 0.5 percent in real terms.
German economy
German economy continues moving sideways
The German economy has still not gathered pace. In late October, the German Federal Statistical Office initially posted a 0.1 percent nudge-up in gross domestic product (GDP) for the third quarter 2024 compared to the previous quarter following price, seasonal and calendar adjustment, but later downwardly revised the result by 0.1 percentage points. At the same time, the quarterly growth initially calculated for the second quarter of minus 0.1 percent was downwardly revised to minus 0.3 percent. GDP following price, seasonal and calendar adjustment is currently only 0.1 percentage points higher than in the fourth quarter 2019, the quarter before the outbreak of the Covid pandemic.
Year on year, German economic output was up by 0.1 percent, but, following calendar adjustment, down by 0.3 percent due to the fact that the third quarter had one more working day this year. Germany is still trailing behind the other major EU member states. GDP in Spain increased by 3.4 percent in the same period, in France, by 1.3 percent, and, in Italy, by 0.4 percent. According to the latest figures from Eurostat, GDP was up one percent in the EU and up 0.9 percent in the euro area.
Growth in real GDP in percent
change over previous year quarter change over previous quarter change over previous year
Source: Federal Statistical Office
In the third quarter 2024, Germany’s economic output was generated by a workforce working in Germany of around 46.1 employees. That is 66,000 people or 0.1 percent more than one year ago. Compared to the previous quarter, however, the number of workers was down by 0.1 percent following seasonal adjustment. That is the first drop since the first quarter 2021. For the first time in one year, the labour volume of all workers measured in hours increased, up 0.4 percent according to preliminary figures from IAB, the research institute of the Federal Employment Agency.
Gross value added increased by 0.1 percent in the third quarter 2024 compared to the same quarter last year. Performance was mixed across the individual sectors. While agriculture and forestry lifted activity by 0.1 percent, gross value added in the manufacturing sector was down by two percent. In construction, the fall in gross value added was even more pronounced at 3.8 percent. Apart from financial and insurance service providers, all service sectors managed to expand their activity. The information and communication sector experienced the highest growth, rising by 2.5 percent, followed by public service providers at plus 2.3 percent. Among other service providers (up 1.6 percent) and property service providers (up 1.1 percent), gross value added also increased above average. The heavyweight sectors, retail, transport and hospitality, and corporate service providers, who together account for almost 30 percent of all gross value added, only expanded by a narrow 0.3 percent in each case.
On the expenditure side of GDP, the consumption expenditure of private households declined 0.1 percent in the third quarter 2024 year on year in real terms, after falling 0.5 percent in the previous quarter. Consumers especially spent less compared to last year on hotel and restaurant services (down 6.9 percent) and on clothing and shoes (down 2.5 percent). Spending was down by a slight 0.7 percent on major spending item insurance and financial services and on other goods and services. Consumers also spent slightly less on alcoholic beverages and tobacco products (down 0.8 percent). Going the other way, expenditure on information and communication services was up by a robust 4.2 percent and healthcare by 3.6 percent. Spending on transport, up 1.3 percent, slowed down markedly compared to the first half of the year. Consumer expenditure was only marginally higher, quarter on quarter, on food and non-alcoholic drinks (up 0.3 percent), household goods and furnishings (up 0.2 percent), housing, energy and water (up 0.1 percent) and leisure, sport, culture and education services. State consumption expenditure increased by a solid 2.5 percent in the third quarter, bringing consumption spending overall in the third quarter up 0.8 percent compared to the same quarter last year.
Gross fixed capital formation fell by 2.3 percent in the third quarter 2024 year on year following price adjustment. This was the eighth consecutive downward quarter. For more than one year now, investment in plant and equipment has recorded the steepest downtrend, falling 5.7 percent in the third quarter. The downward momentum eased off slightly in construction investment at minus 2.6 percent, pulled down particularly by residential housing. In this segment, investment was down by 4.2 percent. Investment in commercial construction contracted one percent. Public construction investment recorded an increase of 1.5 percent while investment in other assets (patents and licences) rose by a solid four percent.
Exports of goods and services slipped down 0.3 percent in the third quarter 2024 following price adjustment. Goods exports were down by a slim 0.6 percent while services exports continued to point upwards, growing another one percent. In the case of imports, the imports of goods were down slightly by 0.3 percent in real terms. Imported services, on the other hand, climbed a good 4.4 percent, buoyed especially by increased spending on transport services and increased fees for intellectual property. Overall, imports rose 1.2 percent.
Foreign trade by country
In the third quarter 2024, German foreign trade picked up slightly in nominal terms. Exports of goods were 1.9 billion euros or 0.5 percent higher than in the third quarter last year, up to 384 billion euros. The strongest increase in absolute terms was in trade with the United States. Goods exported here
rose by 1.5 billion euros or 3.8 percent, followed by exports to the United Kingdom, which expanded by 971 million euros or 5.2 percent. Double-digit increases, although at a much lower level, were also recorded in exports to Japan (up 17.6 percent), India (up 18.8 percent) and Singapore (up 36 percent). Among Germany’s EU partner countries, the only tangible increase was in trade with Poland (up 641 million euros or 2.8 percent). Going the other way, trade decreased with Austria (down 720 million euros) and France (down 694 million euros). Exports to Sweden also decreased significantly in the third quarter, going down 527 million euros or 7.3 percent. In contrast to the buoyant trade with the United States, exports to Mexico were down by a hefty 567 million euros or 11.4 percent. The steepest fall in absolute terms was in trade with China, with exports dropping 2.25 billion euros or 9.4 percent. The EU sanctions against Russia continued to impact trade, with exports to the country dropping another 48 million euros or 2.3 percent, falling below exports to Ukraine for the second consecutive quarter.
German exports and imports in Q3 2024 in selected countries
Year-on-year change
Sources: Federal Statistical Office, own calculations
German imports increased in the third quarter 2024 year on year in nominal terms, rising 1.04 billion euros or 0.3 percent up to 327.8 billion euros. The largest increase by far was in trade with China, with imports from the country 2.3 billion euros or 6.1 percent higher than in the same period last year. Year on year, imports to Germany were up from third countries in particular, including from Switzerland (up 538 million euros or 4.3 percent), the United Kingdom (up 501 million or 5.7 percent) and Vietnam (up 454 million or 12.9 percent). One exception was EU member state Ireland. Imports from the emerald isle expanded 5.1 percent or 331 million euros. Imports from the Netherlands and from Belgium, in contrast, dropped, going down more than average by 708 million euros and 896 million euros respectively. Imports from EU member states France, Hungary and Italy were down by more than half a billion euros in every case.
Employment: weak economy starting to affect labour market
The weak economic momentum in the country is gradually starting to have an impact on employment levels. According to preliminary data from the Federal Statistical Office, the number of people in employment within the country fell by 3,000 in October 2024 compared to the previous month after seasonal adjustment, following a drop of 19,000 in September. Without seasonal adjustment, the number of people in employment compared to October 2023 was still upward, though minimally, by 25,000 or 0.1 percent to 46.32 million.
Difference in the number of workers making social security contributions from the same month last year (right axis)
*seasonally adjusted in million
Source: Federal Employment Agency
The number of people in employment subject to social security contributions, meanwhile, rose to a record high. According to Federal Employment Agency projections, a total of 35.21 million people were in employment subject to social security contributions in September 2024 (latest figure available). That is 123,000 more people than one year ago and, following seasonal adjustment, 10,000 people more than in August this year. Since the beginning of the year, however, this growth has been driven exclusively by part-time employment. The number of workers in part-time employment subject to
social security contribution in September 2024 was 156,000 or 1.5 higher year on year up to 10.65 million according to preliminary projected data. Meanwhile, the number of people in full-time employment subject to social security contributions decreased by 33,000 people or 0.1 percent in the same period.
The other forms of employment trended as follows: the number of self-employed people including contributing family members continued to fall. According to German Federal Statistical Office figures, the number of self-employed people was down by 3,000 in the third quarter 2024 after seasonal adjustment, after falling 4,000 in the second quarter. Compared to the third quarter 2023, the number of people in self-employment was 22,000 or 0.6 percent lower at 3.82 million. The number of people exclusively in marginal employment in September 2024 was 40,000 lower or 0.9 percent lower year on year, down to 3.15 million according to Federal Employment Agency projections.
The number of unemployed people in November, at 2.77 million, was 168,300 or 6.5 percent higher than November last year. After seasonal adjustment, the number of unemployed people in November was also slightly higher than in October 2024, with 7,000 more people registered unemployed. The unemployment rate in November 2024 was 5.9 percent as calculated by the Federal Employment Agency or 3.4 percent according to the ILO definition.
Incoming orders slightly weaker at start of fourth quarter
In October 2024, orders received by German industry dropped 1.5 percent compared to September 2024 following seasonal and calendar adjustment, according to preliminary figures from the German Federal Statistical Office. Excluding large orders, however, incoming orders were 0.1 percent higher than in the previous month. Following an upward revision on account of the late reporting of a large order in shipbuilding, incoming orders in September were up by 7.2 percent, and not, as previously calculated 4.2 percent.
Including the revised September figures, incoming orders in the third quarter 2024 developed as follows: industry collected 5.1 percent more orders in the third quarter than in the early summer months following seasonal and calendar adjustment. Compared to the third quarter 2023, orders were up by 1.9 percent. This is the first time in nine quarters that incoming orders have been positive year on year. Looking at the origin of incoming orders in the third quarter 2024, orders from at home increased by 2.4 percent compared to the second quarter 2024 and orders from abroad were up by 2.9 percent in the same period. Demand from the euro area was up by 2.2 percent, considerably flatter than the rise in demand from third countries, which increased by 3.4 percent following the upward revision in the statistics.
Among the main groups of industrial goods, the quarterly comparison following seasonal and calendar adjustment was as follows: producers of consumer goods recorded a slump in incoming orders of 6.4 percent compared to the second quarter 2024. Demand from abroad was down particularly, tumbling 9.4 percent. Incoming orders among producers of capital goods climbed up a steep 9.1 percent quarter on quarter, with demand from abroad soaring 11.9 percent, outpacing demand from at home which rose by a comparatively moderate 4.1 percent. Year on year, incoming orders were also upward, all of 5.5 percent higher. Producers of intermediates received 1.7 percent more orders in the third quarter 2024 than in the previous quarter, but two percent less year on year. Demand from abroad was slightly stronger than demand from at home.
Within the manufacturing sector, incoming orders were very mixed in the third quarter 2024. The major sector, machinery manufacturing, received 1.4 percent more orders compared to the second quarter following seasonal and calendar adjustment. Incoming orders for producers of vehicles and components dropped a marginal 0.7 percent in the same period, following three upward quarters. While demand for electrical equipment climbed more than twelve percent, orders for data processing equipment and optical products fell by almost seven percent. Producers of metal products received 1.1 percent less orders, while metalworkers collected 2.2 percent more. Demand for chemical and pharmaceutical products was down in the third quarter 2024, dropping 2.3 percent compared to the previous quarter in both cases.
New orders, manufacturing
Change over previous year, two-month-average, in percent (right axis)
Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent
Source: Federal Statistical Office
Order books getting thinner
According to ifo Institute figures, the order backlog in the manufacturing sector at the start of the fourth quarter was downward for the seventh consecutive quarter year on year, down to 3.7 production months. Among the main industrial sectors, the reach of orders in hand among producers of intermediates only slipped down a marginal 0.1 months, down to three production months. Among capital goods producers, the order backlog dropped for the seventh time in a row. Standing at five production months, it is still slightly above its long-term average. In contrast, the order books of consumer goods producers filled out a little. The reach of orders in hand increased by 0.3 to 2.8 production months which is only just below the record high of 2.9 months.
According to figures from the German Federal Statistical Office, the order backlog in the manufacturing sector in September 2024 was 2.5 percent smaller than one year ago following price adjustment. While the order backlog from abroad contracted 4.1 percent compared to September 2023, the reach of domestic orders stagnated in the same period. Despite the latest drop, the reach
of orders in the manufacturing sector overall as of September 2024 was still 21 percent higher than before the outbreak of the Covid pandemic.
Industrial production continues to decline
While incoming orders have bottomed out, the figures for production at the beginning of the fourth quarter were still pointing slightly downwards. In October 2024, industrial production was 0.4 percent down on the previous month following seasonal and calendar adjustment, after falling 2.7 percent in September. At the same time, activity in construction stagnated. Energy production was a clear 8.9 percent down in October compared to September. Overall, the output of the production sector was down by one percent month on month and by 4.5 percent year on year.
Taking into account the revised September figures, industrial production in the third quarter 2024 was down on the previous quarter by 1.9 percent following seasonal and calendar adjustment. Compared to the third quarter last year, production was down by 4.8 percent. This was the fifth consecutive quarterly decrease. Energy production dropped 2.3 percent compared to the previous quarter following seasonal and calendar adjustment. Year on year, on the other hand, energy production was up 2.4 percent. In construction, activity was 1.2 percent lower than in the previous quarter and 4.6 percent lower than in the third quarter last year.
Output in the goods-producing industry
Sources: Federal Statistical Office, own calculations
Among the main industrial groups, the producers of intermediates produced three percent less than in the previous quarter following seasonal and calendar adjustment and 6.4 percent less than one year ago. The production of capital goods decreased by 0.9 percent compared to the previous quarter and 4.5 percent less than one year ago. Consumer goods production was also weak. Compared to the previous quarter, output was down by 2.1 percent. Year on year, the drop was more pronounced at 3.1 percent
Among the main industries, production in the third quarter 2024 trended as follows: the electro industry (down twelve percent) and machinery manufacturing (down 9.5 percent) recorded substantial drops in output. The metal industry saw production drop for the eleventh consecutive quarter, this time by 6.7 percent, its biggest drop yet in the current downturn. The fall in vehicle production was much more moderate in comparison, at only 2.2 percent.
The only industries to record upward production were other transport equipment (up 5.7 percent), the chemical industry (up three percent) and the food, beverages and tobacco industry (up 0.3 percent). Going the other way, production was down among the energy-intensive industries paper (down 0.4 percent) and producers of glass and ceramics (down 2.2 percent).
In view of the course of the year so far, we expect production in the manufacturing sector to fall by at least three percent this year overall. That would be the third consecutive year of dwindling production.
Production, manufacturing
Change over previous year, two-month-comparison, in percent (right axis)
Volume index in manufacturing, two-month-average, seasonally adjusted (left axis)
Change over previous quarter (q-o-q), in percent
Source: Federal Statistical Office
Capacity utilisation close to all-time low
The utilisation of production capacities in the manufacturing sector was down for the sixth time in a row at the start of the fourth quarter 2024. According to ifo Institute figures, industrial capacity utilisation was down to only 76.5 percent. That is 1.1 percentage points lower than in the previous quarter and 7.4 percentage points lower than on average over the last ten years. Capacity utilisation in manufacturing excluding food dropped by 0.9 percentage points, down to 76.2 percent. Industrial capacity utilisation has only ever been lower in the recession year 1993, at the end of the Reunification boom, during the financial crisis in 2009/2010, and at the beginning of the Covid pandemic.
Capacity utilisation was down across almost all manufacturing industries. The producers of motor vehicles and components recorded the steepest drop in capacity utilisation, going down 3.4 percentage points. At 75.5 percent at last count, it was more than ten percentage points below the long-term average. Among producers of electrical equipment (74.5 percent), data processing equipment (77.9 percent), metal products (73.5 percent) and chemical products (73.6 percent), capacity utilisation was between eight and nine percent lower than on average over the last ten years. In machinery manufacturing, capacity utilisation did not fall lower at last count (79.1 percent) but was still almost seven percent lower than the long-term average. In the furniture industry (78.4 percent) and in textiles (70.3 percent), capacity utilisation was upward but still respectively seven and 8.4 percentage points below the long-term average. A positive exception was the food, beverages and tobacco industry. Capacity utilisation here rose 6.9 points to 81.1 percent, only just below the average over the last ten years.
Plummeting revenues in manufacturing
In the third quarter 2024, manufacturing revenue following price adjustment was 1.4 percent lower than in the previous quarter. This was the sixth successive decrease. Year on year, the downward trend was even more pronounced at minus 4.7 percent. While domestic revenue was 5.5 percent down year on year, revenue from abroad was a more moderate 3.5 percent less. The development of revenue from the euro area and third countries followed a similar path. For the first nine months of the current year, revenue compared to the same period last year was down by 4.3 percent in real terms (domestic: down 5.3 percent; foreign: down 3.3 percent).
Manufacturing revenue* (January till September 2024)
Other transport equipment production
Food and Luxury food
Pharmaceuticals
Chemical industry
Mashinery manufacturing
Motor vehicle production Manufacturing
Textiles & fashion
Energy-intensive
Paper industry
Glas, ceramics, stone, industrial minerals
Steel and metal industry
Electronic industry
*Change in percent, year on year
Source: Federal Statistical Office
Looking at the individual industries, production and revenue trends have become more similar again, following substantial distortions last year caused by the soaring energy prices. Apart from other transport equipment, whose revenue increased by 7.2 percent in the first nine months of the year, year on year, almost all other industries saw revenue drop. The electro industry posted the largest drop in revenue (down nine percent). The energy-intensive industries also saw above-average falls in their revenue, including metal (down 7.8 percent), non-metallic minerals (down 6.5 percent) and paper
(down 5.1 percent). In the major industries vehicle production (down 4.4 percent) and machinery manufacturing (down 4.1 percent), revenue dropped to a similar degree as across the manufacturing sector overall (down 4.2 percent). Despite increased production, chemical revenue was down by 2.8 percent. Nominal revenue remained almost unchanged in food, beverages and tobacco (down 0.1 percent) and in pharmaceuticals (down 0.3 percent).
Ifo business climate
After briefly recovering in October, the ifo business climate index for Germany headed back down in November. Companies were considerably less satisfied with current business. Business prospects were only negligibly less positive. Among the individual sectors, there were two different trends. On the one hand, both wholesalers and retailers were not just more positive about their current situation but also slightly less pessimistic regarding prospects. Sentiment is nonetheless still very far from rosy despite the upcoming Christmas season. On the other hand, sentiment among service providers deteriorated, with the positivity shown in October regarding both current business and business prospects reversing. In mainstream construction, the business climate deteriorated for the second month in a row. A large majority of companies surveyed were negative both about their current situation and about the upcoming six months. In the manufacturing sector, the business climate index slipped down again after rising slightly in October. Although companies here were slightly more satisfied with current business, they were also more sceptical going forward. Many companies described their current situation as difficult. The downward trend in incoming orders is weighing down sentiment above all. The ifo economic barometer for the manufacturing sector is therefore still in the recession quadrant. Export prospects proved to be a little ray of light, improving slightly for the first time in five months. Nonetheless, the majority of export-oriented companies continue to be pessimistic, and have been since May 2023.
Business-Cycle Clock
seasonally adjusted
Source: ifo Institut
Outlook
The joy of the mini 0.2 percent growth posted by the German Federal Statistical Office proved to be short-lived. Only weeks later, growth was down by half. The previous quarter was also weaker than initially expected. The German economy has now meandered around zero growth for five years with positive news becoming less and less frequent. The services sector is still managing to compensate for the weak momentum in construction and industry for now, but trends here are also beginning to cloud over. Although industry received more orders year on year for the first time in nine quarters, this was on a very precarious level and, fuelled by quite a number of large orders, will take a long time before it plays into production figures. Prospects going forward are not very promising. There is no sign that energy prices will drop down to internationally competitive levels any time soon. The policy space of Germany’s minority government is very constricted and we can also expect headwind in foreign policy from the former and future US president. The only remaining hope is that the domestic economy will pick up momentum, but this has not happened as yet.
Private consumption turned out to be the biggest disappointment of the year. With a tangible decrease in inflation and high nominal wage agreements, disposable incomes have risen considerably, and yet, this has not triggered a significant increase in private consumption. In the first three quarters of the current year, private consumption only increased by a marginal 0.1 percent compared to the same period last year. According to the GfK consumer climate index of consumer research company GfK and the Nuremberg Institute for Market Decisions (NIM), consumers have become more uncertain in the course of the year. They have become increasingly worried about their jobs, making them more reluctant to make large purchases. This reticence among consumers is also reflected in the clear uptrend in the savings rate seen in the last few months. The latest figures show that sentiment deteriorated further in November after recovering briefly the previous month. Sentiment among consumers has not been as low since May 2024. The end of consumer reticence expected by us in the second half of the year has not materialised as yet so we need to downwardly adjust our growth forecast for private consumption from plus 0.6 percent in real terms down to plus 0.1 percent. State consumption was much stronger than we expected, rising 2.4 percent in the first three quarters of this year compared to the same period last year. In view of the course of the year so far, we need to upwardly revise our forecast for public consumption from 1.5 percent up to two percent. Overall, this would result in an increase in consumption expenditure overall in 2024 of 0.7 percent.
Investment in plant and equipment decreased in the first three quarters of the year, year on year, by a total of 5.4 percent. On account of the steep drop at the start of the year, we already downwardly revised our forecast in the summer (Economic Report III/2024). The downward momentum in investment activity accelerated further in the third quarter. With low incoming orders, political uncertainty and looming trade disputes setting the scene, investment activity is not likely to pick up any time soon even if further interest rate cuts are on the horizon. We therefore expect investment in plant and equipment to contract further in the fourth quarter and stick to our forecast that investment here will drop six percent in 2024 overall. We also see no need to adjust our forecast for construction investment of minus 3.5 percent. Investment in construction has fallen by 3.9 percent overall in the first three quarters of the current year, but the drop in the second quarter was much more moderate than in the first quarter. While investment in residential construction dropped by more than four percent at last count, the downtrend in non-residential construction appears to have come to an end. In civil engineering, which comprises mainly transport and pipeline networks, investment levels even turned up in the last two quarters. Investment in other assets (software, research and development) increased
by 4.4 percent overall in the first three quarters of the year so that we are sticking to our forecast of four percent growth this year. All in all, gross fixed capital formation is set to drop by 2.9 percent this year compared to the previous year.
In the first three quarters of the current year, exports dropped 0.6 percent compared to the same period last year according to national accounts. As in the last three quarters, German exports were not able to participate in the pick-up in global trade, which expanded more than two percent in the third quarter year on year. On account of the course of the year so far, we need to adjust our forecast slightly and now expect exports to drop by 0.6 percent. German imports, on the other hand, rose solidly over the summer following a weak start to the year. Imports of services increased by more than four percent in each of the last two quarters year on year. In view of the substantial rise recorded in the latest figures, we are upwardly revising our forecast for the year overall, and expect imports to drop by only one percent, and not the 1.5 percent we expected so far. Net exports will therefore only make a small contribution of 0.1 percentage points to GDP growth. All in all, we expect Germany’s gross domestic product this year to drop by 0.1 percent in real terms. The German economy is thus heading for its second consecutive year of contraction.
BIP forecast for 2024:
Change in real economic output over the previous year in percent
Sources: Federal Government (February 2024; *Private households and private non-profit institutions serving households), Board of Experts (November 2024); ** including private households and private non-profit institutions,*** including military weapon systems, own calculations eigene Berechnungen
Sources
BDI (2024). Quarterly Report Germany III / 2024. Economic lull persists | GDP continues to fall in second quarter 2024. 5 September. Berlin.
Imprint
Federation of German Industries e.V. (BDI)
Breite Straße 29 10178 Berlin
T: +49 30 2028-0 www.bdi.eu
Lobbyregisternummer R000534
Author
Thomas Hüne
T: +49 30 2028-1592 t.huene@bdi.eu
Editorial / Graphics
Dr. Klaus Günter Deutsch
T: +49 30 2028-1591 k.deutsch@bdi.eu
Marta Gancarek
T: +49 30 2028-1588 m.gancarek@bdi.eu
This report is a translation based on „Quartalsbericht Deutschland IV / 2024“, as of 12 December 2024
Basic data for national accounts
GDP (price, seasonally and calendar adjusted) Change over previous period in percent
Contribution to growth (in percentage points)
Source: Federal Statistical Office