QUARTERLY REPORT
Economy grows 1.8 percent in 2022
Industrial production down 0.3 percent on last year
▪ Economic output dropped at the end of 2022 with a mild recession on the cards over the winter period. Gross domestic product at the end of the year was slightly lower than before the outbreak of the Covid pandemic.
▪ Private consumption expenditure remains weak. Although employment levels are rising, inflation is eating away at purchasing power
▪ Investment activity is only looking to expand marginally this year with uncertainty still high. Construction investment is being weighed down considerably by soaring interest rates and construction costs.
▪ No tangible impetus expected from foreign trade with global trade volume growing at low level. Exporters are cautiously optimistic
▪ Industrial production dipped last year. Production levels should remain stable in the first half of 2023 given the high volume of manufacturing orders in hand.
German economy
German economy stifled by inflation and energy crisis towards end of year
The steep price increases, particularly in energy and food, stifled the growth of the German economy towards the end of the year. In the fourth quarter 2022, Germany’s gross domestic product dropped 0.4 percent compared to the previous quarter following price, calendar and seasonal adjustment, according to the German Federal Statistical Office. In the third quarter, GDP was still 0.5 percent up on the second quarter. Year on year, GDP was only 0.3 percent higher in real terms in the fourth quarter on account of the fewer number of working days (up 0.9 percent after calendar adjustment), following an increase of 1.3 percent in the third quarter. Compared to the figures published in late January (down 0.2 percent), the revised figures conclude a deeper dip in GDP. The annual growth of GDP in 2022 was confirmed at the original estimate of 1.8 percent. In the fourth quarter 2022, the country’s economic output was generated by a workforce of somewhat more than 45.9 million employees working in Germany. That is 492,000 people or 1.1 percent more than one year ago. This brought the employment level in Germany to a new record high. The labour volume measured in hours decreased by 0.5 percent year on year, on account of calendar effects and a much higher sick rate
On the income side of GDP, gross value added increased by 0.4 percent in the fourth quarter 2022 year on year in real terms. Other service providers boosted the overall result, increasing their activities by 5.9 percent. Public service providers and information and communication service providers also recorded above-average growth, expanding gross value added by 3.7 percent in each case. Moderate growth was posted by financial and insurance services (up 1 8 percent), corporate services (up 1 1 percent), and property services (up one percent). The only service providers that saw their gross value added sink were construction services (down 6.2 percent) and retail, transport and hospitality (down 0.7 percent) In manufacturing, gross value added turned down after its rise in the third quarter, falling 1.1 percent in the fourth quarter.
On the expenditure side of GDP, private consumption expenditure rose 0.4 percent compared to the fourth quarter 2021 but was still 2.2 percent lower than before the outbreak of the pandemic. In the fourth quarter, consumers spent more money than in the fourth quarter last year on hotels and restaurants (up 19 1 percent). Spending was also up on transport and communication (up 3.9 percent) and leisure, entertainment and culture (up 2.5 percent). Households spent considerably less on household furnishings and household goods (down 5.7 percent) and on food, beverages and tobacco (down 6.1 percent). Spending on housing energy and water also dropped in real terms (down 2.1 percent). State consumption expenditure increased by 0.5 percent in the final quarter of the year. Following seasonal and calendar adjustment, state consumption spending was eight percent higher than before the outbreak of the pandemic.
Gross fixed capital formation decreased 1.2 percent in the fourth quarter. While investment in plant and equipment increased 3.1 percent, and investment in other assets (incl. software and patents) was up by 2.5 percent, construction investment slid down 4.9 percent. Gross fixed capital formation only provided a positive contribution to GDP growth of 0.7 percentage points on account of extensive changes in inventories of 0.9 percentage points. Exports rose 0.5 percent year on year in real terms, with the export of services increasing by 2.9 percent and the export of goods decreasing by a minimal 0.2 percent. Imports grew by 1.9 percent over the same period, fuelled primarily by the steep rise in spending on travel by German residents abroad and the import of other services. The import of goods
only increased by a slim 0.2 percent. With imports outpacing exports substantially, net exports pulled GDP growth down by 0.6 percentage points in the fourth quarter
Foreign trade: regional trends
In the fourth quarter 2022, the export of goods increased by 39.3 billion euros or 10.8 percent year on year (country-specific seasonally adjusted data is not available) The strongest growth by far in absolute figures was in trade with the United States (up 8.1 billion euros or 24.8 percent), followed by France (up 3.4 billion euros or 12.9 percent) and Austria (up 3.1 billion euros or 16.0 percent). Trade with the United Kingdom also picked up (up 2.4 billion euros or 14.0 percent). Exports to euro partner countries Poland, Italy, Belgium and Spain and Switzerland were average. The value of exports to Turkey surged 43.6 percent following a tumble last year. Trade with China slowed somewhat, as it had already last year, with exports dropping by 652 million euros or 2.4 percent. EU sanctions brought exports to the Russian Federation down by more than one half (down 57.1 percent or 4.1 billion euros).
German goods imports far outperformed exports, increasing by 43.4 billion euros or 13.0 percent year on year in the fourth quarter 2022. Imports from Norway were particularly strong, with a combination of high energy prices and a steep increase in gas imports bringing imports from the country up by 6.2 billion euros or 65.8 percent. This was the strongest increase in imports from any one country, both in absolute and proportional terms. Imports from China and the United States rose by around 5.5 billion euros in each case. Imports from EU partner countries Poland, the Czech Republic and Austria were average. Goods imports from some countries outside the EU recorded more momentum, with imports from Vietnam surging up by more than 50 percent, Taiwan by more than one third and Turkey by more than one quarter. Six of the ten countries from which goods exports to Germany rose the most in absolute figures in the fourth quarter 2022 were not in the EU. Imports from
Russia were slashed by almost one half on account of sanctions (down 4.9 billion euros), and goods imported from the Netherlands also dropped, by a much more moderate 900 million euros or 2.8 percent.
German exports and imports in Q4 2022 in selected countries
Sources: Federal Statistical Office, own calculations
Labour market stable despite weak economy
According to preliminary data from the German Federal Statistical Office, the number of people in employment rose by 64,000 in January 2023 after seasonal adjustment, following an increase of
29,000 in December 2022. Compared to January 2022, the number of people in employment increased by 454,000 or one percent to 45.57 million
The biggest increase in employment was recorded by employment subject to social security contributions According to projections by the Federal Employment Agency, a total of 34.73 million people were in employment subject to social security contributions in December last year (most recent figure available). That is 46,000 people more than in November and 446,000 more people than one year ago. The number of workers in full-time employment subject to social security contributions increased by 224,000 or 0.9 percent and the number of workers in part-time employment subject to social security contributions rose by 222,000 or 2.2 percent
The latest figures on other forms of employment display divergent trends. The number of selfemployed people including contributing family members recorded another slight drop in the fourth quarter 2022 compared to the previous quarter. Year on year, the number of self-employed people was down by 37,000 or 0.9 percent to 3.89 million in the fourth quarter. The number of people exclusively in marginal employment rose slightly, according to preliminary figures from the Federal Employment Agency, increasing by 77,000 or 1.9 percent to 4.19 million in December 2022 year on year. The number of unemployed people increased by 192,000 or 7.9 percent to 2.62 million in February 2023 (year on year) This brought the unemployment rate in February 2023 to 5.5 percent as calculated by the Federal Employment Agency or three percent according to the ILO definition.
Order intake swells at start of year with high demand from third countries
In January 2023, incoming orders for German industry increased by one percent compared to the previous month following price, calendar and seasonal adjustment Domestic orders dropped 5.3 percent, while orders from abroad rose 5.5 percent. The increase was propelled by robust demand from third countries (up 11.2 percent), while orders from the euro area decreased by 2.9 percent in the same period.
After a revision of the December figures, new orders for German industry dropped by 3.9 percent in the fourth quarter 2022 compared to the previous quarter following seasonal and calendar adjustment. Year on year, the decline was even more pronounced at 7 9 percent. Looking at the origin of orders, incoming orders from at home were down by 8.7 percent year on year, slightly more than those from abroad (down 7.3 percent). Among foreign orders, demand from the euro area contracted more (down 7.8 percent) than orders from third countries (down seven percent).
Among the main groups of industrial goods, demand for capital goods recorded the steepest slump, going down 8.7 percent year on year. Domestic demand (down 12.9 percent) tumbled further than demand from abroad (down 6.4 percent). Producers of intermediates also received considerably less orders in the fourth quarter 2022 than one year ago (down 7.5 percent). Demand from abroad dropped the most, going down 10.5 percent compared with a 4.3 percent drop in domestic orders. Demand for consumption goods was also downward, but by a more moderate 3.1 percent. Here too, the drop in domestic demand was more pronounced than in foreign demand.
Order backlogs remain high
According to ifo Institute, the reach of orders in hand in manufacturing dropped down slightly to 4.6 months at the start of the first quarter 2023. However, this figure is only slightly lower than the record high posted in the fourth quarter of last year. The order backlog for producers of intermediates also remained at its record high. Companies in this sector need an average of 3.9 production months to work off their order backlog. Capital goods producers, on the other hand, reduced their reach of orders in hand somewhat. At 6.7 production months, it was lower than the record high of 6.9 months recorded in October 2022 but still 2.7 production months more than the average over the last ten years. Consumption goods producers increased their order backlog to 2.5 production months at the beginning of the year. This was 0.4 months more than the average over the last ten years.
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
According to figures from the German Federal Statistical Office, orders in hand for manufacturing after price, calendar and seasonal adjustment were 0.4 percent lower in December 2022 than in November. This was the second consecutive decrease. While domestic orders in hand rose marginally compared to November, the order backlog from abroad slimmed down for the second month in a row, dropping this time by 0.7 percent. Producers of intermediates recorded a slight increase in orders in hand, up to 3.8 production months. Among producers of capital goods, the order backlog dropped down slightly to 10.6 months. For consumption goods producers, orders in hand remained unchanged at 3.4 production months
Industrial production continues to rise at start of year
In January 2023, industrial production increased by 1.8 percent compared to the previous month according to preliminary figures. Furthermore, the production figures for December 2022 were upwardly revised to minus 0.9 percent (until now: minus 2.1 percent). The mild weather in January triggered a solid rise in production in the construction sector. Construction activity increased by 12.6 percent compared to the same month one year ago, following a drop of 7.5 percent in December
In mainstream construction, production was up by 10.4 percent, in the finishing trades by 15.0 percent. Energy production only recorded a lean growth of 0.4 percent. All in all, output in the production sector was up by 3.5 percent compared to December 2022 but down by 1.6 percent compared to January 2022.
Sources: Federal Statistical Office, own calculations
The results for the fourth quarter 2022 are therefore as follows: compared to the previous quarter, industrial production increased by 0.2 percent following seasonal and calendar adjustment, after a rise
of 0.4 percent in the third quarter. Year on year, industrial production slipped by a marginal 0.1 percent. Compared to the last quarter before the outbreak of the Covid pandemic, industrial activity was 3.5 percent lower overall. Energy production was down considerably on the previous quarter, dropping 7.2 percent following seasonal and calendar adjustment. Year on year, energy production was down by 10.6 percent. Production in the construction sector was also lower, both compared to the previous quarter (down 1.7 percent) and year on year (down 3 7 percent). The main factor hampering performance in construction were the finishing trades (down 5.9 percent), while output was only down minimally in mainstream construction
Among the main industrial groups, producers of intermediates produced much less following seasonal and calendar adjustment, both compared to the third quarter 2022 (down 4.1 percent) and the fourth quarter 2021 (down 5.9 percent). Production in the chemical industry recorded a particularly pronounced fall. The production of consumption goods followed a more moderate downward path, sinking 0.9 percent compared to the third quarter and two percent year on year. Going the other way, the production of capital goods was 4.2 percent up on the previous quarter. Production was also much higher year on year, by as much as 5.3 percent
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
Looking at the individual industrial goods, performance in the fourth quarter 2022 was very mixed year on year. Vehicle production surged up 9.7 percent. Production also expanded in electrical and electronics, machinery manufacturing and in pharmaceuticals. However, most industries saw production levels decline in the final quarter of 2022. Energy-intensive industries struggled particularly, notably chemicals (down 23.7 percent), paper (down 14.9 percent), and textiles and clothing (down 5.3 percent) Metal producers and processors reduced their output by 4.7 percent, and food, beverages and tobacco by 4.3 percent. Producers of other non-metallic mineral products saw production drop eight percent.
Capacity utilisation
At the start of 2023, industrial capacity utilisation sank for the fourth consecutive time. Capacity utilisation in manufacturing as measured by the ifo Institute was at 84.2 percent at the start of the first quarter. This represents a drop of 1.4 percentage points compared to one year ago but is still as high as on average over the last ten years. Capacity utilisation in manufacturing excluding food dropped 1.7 percentage points year on year, down to 84.3 percent, bringing it below the ten-year average for the first time in two years.
Looking at the individual industries, the picture was very mixed. Capacity utilisation in vehicle production increased year on year, but, at 85.6 percent, was still 0.6 percentage points lower than the long-term average. In pharmaceuticals and food, on the other hand, capacity utilisation was higher than one year ago. At 80.4 percent for pharmaceuticals and 83.4 percent for food, capacity utilisation was also higher than the long-term average in both cases. Among producers of data processing equipment, optical and electronic equipment, and machinery manufacturers capacity utilisation was lower year on year but more than two percentage points higher than the average over the last ten years Capacity utilisation among producers of metal products dropped by 1.1 percentage points down to 82.9 percent but was still slightly above the long-term average. In textiles, capacity utilisation was down by 1.4 percentage points on last year. The furniture industry posted a capacity utilisation rate 6.5 percentage points lower than one year ago. Chemicals recorded the biggest drop in capacity utilisation of 8.3 percentage points, down to 74.3 percent, which is almost nine percentage points lower than on average over the last ten years
Industrial revenue at end of year higher than before outbreak of pandemic for the first time
In the fourth quarter 2022, sales in the manufacturing sector increased by 1.2 percent compared to the previous quarter following price adjustment. Year on year, sales were up by as much as
3.7 percent. This is the first time that industrial revenue was higher than before the outbreak of the Covid pandemic in real terms. While domestic revenue stagnated year on year, sales from abroad recorded a robust rise of 6.8 percent. For 2022 overall, real revenue was up by 2.3 percent. Revenue from at home increased by a much weaker 0.8 percent compared to business from abroad, which grew 3.8 percent.
Among the individual industries, other transport equipment and vehicle production registered the strongest nominal rises in sales, up 22.7 percent and 17.8 percent respectively. Sales also increased more than in the manufacturing sector overall in electrical and electronics, and in food, beverages and tobacco. Machinery manufacturing also recorded a solid increase in sales of 12.7 percent. Industries that saw sales rise despite declining production were textiles and clothing (up 9.8 percent), building materials (up 10.8 percent), and metal production and metalworking (up 9.5 percent). Chemicals and the woodworking industry both recorded double-digit increases in sales at the end of the year despite downward production
Unclear prospects for industry
On account of the sideways movement in 2022 overall, the manufacturing sector started out the new year with a positive carryover effect of 0.2 percentage points. If production levels remain at their fourth quarter 2022 levels throughout the year, this would result in an increase in production of 0.2 percent Trends among the main industrial groups are mixed. Among capital goods producers the positive carryover effect was 4.6 percent. Production among producers of intermediates dropped considerably over the course of last year producing a negative carryover effect of 4.4 percent. Consumer goods producers started out the year with a negative carryover effect of 1.4 percent.
In January, the purchasing managers’ index for manufacturing stood more than two index points above its latest low in October 2022. At 47.3 points, it is still well below the threshold to expansion of 50 points. The most recent figures available are for February 2023 and show a drop of a whole point, the index has thus lost half of its gain since its low last autumn. Economic recovery has not yet set in.
Ifo business sentiment barometer: mood returning to normal
The ifo business climate index for Germany improved for the fourth consecutive month in February 2023, rising by one further index point. As in the last few months, expectations for the next six months have improved, while companies are somewhat more pessimistic about current business, as they were in January already Among the individual sectors, sentiment in retail and wholesale brightened the most Retailers and wholesalers were not only more optimistic about their prospects but also more satisfied with current business than in January. They seem to have shaken off their gloomy sentiment from last year. Among service providers, business sentiment improved substantially for the fifth time in a row. The improvement in prospects was slightly more pronounced than in current business. Sentiment improved particularly in hospitality and tourism. The mood is also better, though to a lesser extent, in mainstream construction. Most construction companies surveyed rated their current situation as good, but the overwhelming majority were pessimistic about the future. In manufacturing, the business sentiment index reached its highest level since May 2022, boosted by much improved prospects while the rating of current business dropped
slightly. Export prospects, on the other hand, declined somewhat after four consecutive rises, but have still been rated as positive by the majority of companies surveyed since November 2022.
Outlook
The easing of almost all Covid restrictions has brought a bit of normality back to business. Concerns of gas shortages over the winter did not materialise. Following the price peaks last summer, prices on the energy markets have dropped considerably. The high prices for energy and food will nonetheless restrict purchasing power substantially this year and curb consumer demand. Sentiment indicators such as the consumer barometer of the German Retail Federation HDE and the consumer climate index published by the German consumer research company (GfK) confirm this trend. Although the indicators have pointed up since the end of last year, they are still as low as they were at the start of the Covid pandemic in Germany. The accumulation of savings during the pandemic has also largely been dissolved by now, which will bring down overall private consumption spending in real terms. Support for refugees from Ukraine and aid measures of the federal government to compensate for the high energy prices will burden public budgets. At the same time, the end of the pandemic also means that most of the expenditure for vaccines and hygienic measures have stopped so that state consumption expenditure this year will be lower than last year All in all, our estimates indicate that consumption expenditure will produce a negative contribution to growth
Investment activity is set to develop cautiously in 2023. Investment in plant and equipment is beleaguered by high uncertainty, weak prospects and rising financing costs. Positive impetus could come from spending on defence. Construction investment is suffering from the steep increases in building materials and interest rates. Investment in other assets (software, research and development)
should largely escape the downward trend. All in all, the weak development of investments is likely to pull down GDP growth this year.
Net exports are not likely to curb GDP growth much this year. Export prospects for trade with our most important trade partners have improved somewhat. The European Commission expects low growth for the European Union this year. The economy in the United States firmed up more than expected in the last quarter of 2022. German exports should also benefit from a pick-up in momentum in China. With the global trade volume growing slightly, we expect exports of goods and services to rise by around one percent. This will also lead to a corresponding increase in the import of intermediates. A stronger euro than one year ago and lower energy prices will also make the bill for imports lower than last year. The economic situation has improved a little since the turn of the year, but it remains to be seen whether this will result in a slight rise in economic output.
Imprint
Bundesverband der Deutschen Industrie e.V. (BDI)
Breite Straße 29
10178 Berlin
T: +49 30 2028-0
www.bdi.eu
German Lobbyregister Number 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 I / 2023“, as of 13 March 2023
Economy grows 1.8 percent in 2022 | Industrial production down 0.3 percent on last year 22/03/2023
Basic data for national accounts
GDP (price, seasonally and calendar adjusted) Change over previous period in percent