Economic situation in Germany in January 2025
- According to the Federal Statistical Office, the gross domestic product (GDP) declined by 0.1% in the fourth quarter, adjusted for price, seasonal, and calendar effects. The preliminary annual GDP result for 2024 shows a price-adjusted decline of 0.2%. While the manufacturing sector continues to be characterized by declining production, the situation in consumer-related services appears somewhat more favorable. A noticeable economic recovery in Germany is likely to begin only once there is greater clarity regarding economic, financial, and geopolitical conditions.
- Production stabilized somewhat in November, but orders declined due to volatile large-scale contracts. Overall, there is still no sign of a turnaround in the industrial economy. In the more meaningful three-month comparison, industrial output was reduced by 1.3%, even though incoming orders in the manufacturing sector increased by 1.7% at the same time. Sentiment indicators from ifo and S&P Global remain at low levels.
- The retail sector (excluding motor vehicles) weakened slightly in November, with a price-adjusted sales decline of 0.1%. However, compared to the same month of the previous year, retail sales recorded an increase of 3.0%, and in the three-month comparison, a rise of 2.3%. Overall, new car registrations in December declined significantly, both compared to the previous month (-6.2%) and the same month of the previous year (-7.1%). However, in the three-month comparison, there was an increase of 10.1%. Given growing concerns about job security and ongoing domestic and geopolitical uncertainties, a noticeable recovery in consumer sentiment remains elusive.
- The recent upward trend in consumer prices continued toward the end of the year. The inflation rate is expected to have risen significantly to +2.6% in December, driven by several factors: The year-on-year decline in energy prices was smaller than anticipated, and price increases in the services sector remain high. This is also reflected in core inflation (excluding energy and food), which continued to rise.
- Despite ongoing economic stagnation, the labor market remained relatively stable at the end of the year, although future prospects remain bleak. The number of employed persons increased in November, but at the same time, registered unemployment continued to rise moderately in December. The number of employees on short-time work also increased again in December. Leading indicators suggest a further decline in labor demand, meaning that no turnaround in the weak labor market trend is expected at the beginning of the year.
- Corporate insolvencies rose by 35.9% in October compared to October 2023, reaching 2,012 cases, according to final data. A total of 18,234 insolvencies were registered from January to October, 23.6% more than in the same period of the previous year. The IWH insolvency trend remained almost unchanged in December compared to November but was still 24.3% higher than in the same month of the previous year. Insolvency dynamics remain high.
Persistent Economic Weakness at the Turn of the Year
Germany’s economic downturn continues into the new year. According to initial, preliminary estimates from the Federal Statistical Office, GDP declined slightly by 0.1% in the final quarter of the year on a price-, seasonally-, and calendar-adjusted basis compared to the previous quarter. For the entire year of 2024, the inflation-adjusted gross domestic product (GDP) fell by 0.2% compared to the previous year. Public consumption and, to a lesser extent, private consumption contributed positively, but these effects were overshadowed by a significant decline in fixed investments and a negative impact from net exports, as stagnating imports were met with declining exports.
These results are reflected in recent indicators: While industrial production showed a notable recovery in November, the three-month trend remains downward. Current sentiment indicators such as the ifo Business Climate Index and the Purchasing Managers’ Index for manufacturing show no signs of improvement against the backdrop of continued weak orders and the threat of U.S. protectionism. The services sector presents a mixed picture at the beginning of the fourth quarter: While production in business-related services weakened alongside industrial production, consumer-oriented services saw a slight improvement. Production in consumer-related services remained on an upward trend. Consumer sentiment remains subdued at the turn of the year: The HDE Consumption Barometer deteriorated significantly in January, whereas the GfK Consumer Climate Index showed slight improvement. Despite weak results in November, inflation-adjusted retail sales grew by just over 2% in the three-month comparison. However, according to the German Retail Association, Christmas sales were weaker than expected, which was partially reflected in the declining assessment of the business climate in retail. Following a slight increase in the third quarter, private consumption likely continued its gradual recovery at year-end, supported by continued real wage gains.
An economic recovery in Germany remains elusive at the end of 2024. High uncertainties regarding domestic and international economic prospects currently dampen demand, production, investment, and private consumption. Only with clear prospects for future economic, financial, and geopolitical conditions can the current reluctance dissolve and stagnation give way to stronger economic growth momentum.
Muted Global Economic Development
Global industrial production remains sluggish. At the beginning of the fourth quarter, seasonally adjusted production increased by 0.3% compared to the previous month, standing 1.8% above the previous year’s level. However, leading indicators for industrial production send rather negative signals at the turn of the year. The S&P Global sentiment indicator rose slightly by 0.2 points to 52.6 in December, thanks to improved sentiment in the services sector. However, in manufacturing, the index fell back below the 50-point growth threshold. Additionally, the SENTIX index, which reflects financial investors’ sentiment on the global economy, declined slightly again in January.
Global trade stagnated in October. Compared to the same month of the previous year, it was up by only 1.6%. The RWI/ISL Container Throughput Index remained nearly unchanged in November at 131.8 compared to 131.9 in October. While activity in Chinese ports continued to cool, European ports saw a strong recovery, with the North Range Index rising from 114.5 to 115.9.
Exports Rebound in November
After two consecutive declines, nominal exports of goods and services grew by 2.1% in November compared to the previous month, seasonally and calendar-adjusted. However, in the more meaningful three-month comparison, exports were still down by 1.1%. Demand from key export markets, such as EU countries (-1.7%) and China (-4.2%), weakened in November compared to the previous month. However, exports to the U.S. surged by 14.5%, potentially driven by catch-up effects following a temporary U.S. port worker strike and possibly by anticipatory deliveries ahead of proposed U.S. tariff hikes. Nominal imports of goods and services increased by 0.4% from the previous month on a seasonally and calendar-adjusted basis, with a slight gain of 0.7% in the three-month comparison. As exports rose more sharply than imports, the monthly trade surplus expanded from its two-year low of €8.1 billion in October to €10.6 billion in November.
Import prices increased significantly by 1.0% in November compared to the previous month, while export prices rose by 0.4%. Both energy prices and prices for manufactured goods contributed to the price increase on both import and export sides. As a result, the terms of trade deteriorated for the second consecutive month, declining by 0.5%. In real terms, export growth was likely weaker, while inflation-adjusted imports may have declined slightly.
Leading indicators continue to send mixed signals. Foreign orders plummeted by 10.8% in November compared to the previous month, primarily due to sharp declines in orders for capital and consumer goods. However, demand for intermediate goods increased by 1.9%. In the three-month comparison, foreign orders still showed a 6.3% gain. The ifo Export Expectations Index deteriorated further in December, dropping from -5.8 to -6.1 points. Core industrial sectors, such as metals, automotive, and, to a lesser extent, mechanical engineering, anticipate declining exports. The downward trend in foreign order backlog assessments continued.
Overall, the outlook for German exporters remains mixed despite the November rebound. Demand for capital goods remains weak, and uncertainty over potential U.S. tariff hikes poses additional risks. Current data suggests that export activity is likely to decline further in the final quarter of 2024, despite potential front-loading effects in U.S. trade.
Industrial Production Stabilizing, Order Intake Declining Due to Volatile Large Orders
The production in the manufacturing sector stabilized somewhat in November. After two consecutive declines, it increased by 1.5% compared to the previous month, adjusted for prices, calendar, and seasonality. Additionally, the October figure was slightly revised upwards. Production growth was recorded across all three major sectors. Industrial output rose by 1.0%, construction by 2.1%, and energy production rebounded by 5.6% following a sharp decline in the previous month.
Within the industrial sector, mostly positive developments were observed in November. In particular, production increased in other vehicle manufacturing (+11.4%) and among manufacturers of motor vehicles and motor vehicle parts (+0.8%). Significant increases were also seen in coke and petroleum processing (+16.3%) as well as in the production of IT, electrical, and optical products (+2.3%). In contrast, production declined for chemical (-0.9%) and pharmaceutical products (-2.4%) compared to the previous month.
In the more meaningful three-month comparison, production in the manufacturing sector continued to decline in November, with a decrease of 1.1%. The energy sector experienced the steepest decline at -2.4%, while the reductions in industry (-1.3%) and construction (-0.2%) were somewhat less pronounced. Energy-intensive industries also saw a negative three-month trend (-1.2%), continuing their downward trajectory.
Incoming orders in the manufacturing sector fell by 5.4% in November compared to the previous month, adjusted for prices, calendar, and seasonality, following a 1.5% decline in October. Foreign orders dropped sharply by 10.8% in November, while domestic orders increased by 3.8%. However, when adjusted for large-scale orders, total incoming orders rose slightly by 0.2% compared to the previous month.
In the less volatile and therefore more meaningful three-month comparison, incoming orders in the manufacturing sector increased by 1.7%. Domestic demand fell significantly by 4.8%, while foreign orders surged by 6.3%, maintaining an upward trend.
Despite the recent positive production developments, a sustained industrial recovery at the turn of the year remains elusive. Geopolitical uncertainties persist, incoming orders have declined again, and sentiment indicators remain at low levels.
Retail Sales Recently Weaker; Moderate Recovery Trend Intact
Price-adjusted retail sales (excluding motor vehicles) fell slightly by 0.1% in November compared to the previous month, despite the start of the holiday shopping season. However, compared to the same month last year, real retail sales increased by 3.0%. The food retail sector remained almost unchanged, with a slight increase of 0.4% (+0.1%). Online and mail-order sales declined by 1.2% but were up 9.5% year-over-year. For the full year 2024, initial estimates indicate that retail sales grew by 1.3% in real terms after two consecutive years of negative growth. After declines in the first half of the year, car sales have recently shown a noticeable recovery.
New car registrations fell sharply in December, both compared to the previous month (-6.2%) and the same month last year (-7.1%). However, in the more meaningful three-month comparison, registrations increased by 10.1% compared to the previous period. Private new car registrations saw a slight decline of 1.7% in December compared to the previous month, but the three-month trend showed a significant 10.1% increase. New car registrations by businesses and self-employed individuals dropped significantly by 8.4% in December.
Consumer sentiment in Germany, as measured by the HDE Consumer Barometer and GfK Consumer Climate Index, recently showed mixed signals. According to GfK’s forecast, consumer sentiment is expected to rise slightly by 1.8 points to -21.3 points in January. However, for December, the market research institute reported a decline of 4.7 points to -23.1 points. According to GfK, rising income expectations and an increased willingness to make purchases had a positive impact. In contrast, the HDE Consumer Barometer deteriorated sharply at the beginning of the year after showing an improvement in November and December.
The ifo Business Climate Index for retail (including motor vehicles) declined slightly in December by 0.8 points to -23.0 points. The assessment of the current situation worsened by 0.6 points to -12.7 points, while expectations fell by one point to -32.7 points. Nevertheless, according to an ifo survey, retailers increasingly plan to raise prices, with price expectations rising for the third consecutive time to 28.1 points.
After a disappointing consumer trend in the past year, some leading indicators suggest a cautious recovery, albeit still at a low level. Given increasing concerns about job security and persistent domestic and geopolitical uncertainties, a significant improvement in consumer sentiment remains elusive.
Inflation Rate Rises to 2.6% at Year-End
The upward trend in consumer prices observed in recent months continued at year-end. The inflation rate, measured as the year-over-year increase in consumer prices, is expected to have risen significantly to 2.6% in December, up from 2.0% in October and 2.2% in November.
Several factors contributed to this rise in inflation: While energy prices remained lower compared to the previous year, the dampening effect was diminishing. Since September, the annual change rate has risen steadily from -7.6% to -1.7% in December. Additionally, food price inflation has accelerated again, with prices 2.0% higher than the previous year, though still increasing at a below-average rate. Core inflation (excluding energy and food) also rose further in December to 3.3%, driven primarily by sustained strong price pressures in the services sector (+4.1%).
Seasonal factors (such as tourism and hospitality) likely played a role in the December consumer price increase. The unadjusted consumer price index rose by 0.54% compared to the previous month, but seasonally adjusted, the increase was only 0.3%. For the full year 2024, the inflation rate is expected to average 2.2%, with core inflation at 3.1%.
Prices at earlier stages of the supply chain remain moderate, providing some relief to overall inflation: Producer prices rose slightly by 0.1% in November year-over-year, marking the first increase since June 2023. Compared to the previous month, producer prices increased by 0.5%. Import prices rose by 0.9% month-over-month and were 0.6% higher than a year earlier. Wholesale prices remained unchanged compared to October but fell by 0.6% year-over-year.
On the spot markets, natural gas prices have risen significantly in recent months. The TTF Base Load price recently stood at approximately €48/MWh, about 61% higher than a year ago and up 17% from the previous month. Market expectations suggest that natural gas prices will remain slightly below €50/MWh in the coming quarters. Brent crude oil prices were around 11% higher than in November, reaching approximately $79 per barrel, a nearly 10% increase compared to the previous year.
At the beginning of 2025, further upward pressure on consumer prices is expected due to administrative price increases, including higher CO₂ pricing, postage rate hikes, and the increased cost of the Germany Ticket. However, over the course of the year, inflation-dampening factors—such as moderate upstream price developments, the lagging effects of restrictive monetary policy, and lower wage settlements—are likely to prevail.
Labor Market Outlook Remains Gloomy at Year-End
Despite continued economic stagnation, the labor market remained relatively stable toward year-end. In November, employment increased by 23,000 people compared to October (seasonally adjusted). Social security-contributing employment also rose in October (+15,000 people). However, registered unemployment increased moderately in December by 10,000, and underemployment by 5,000. Short-time work usage was about 110,000 higher than a year earlier, in line with increased notifications at the Federal Employment Agency in recent months. The manufacturing sector remains particularly affected by short-time work.
Leading indicators do not yet point to a significant labor market recovery at the start of the new year. The IAB Labor Market Barometer fell to 99.2 points, its lowest level outside of the COVID-19 pandemic period. Expected employment trends have weakened again. Similarly, the ifo Employment Barometer, at 92.4 points, suggests increasingly restrictive hiring plans across most industries. Job vacancies reported to the Federal Employment Agency remain at historically low levels, reflecting a continued decline in labor demand, according to the latest IAB survey. Despite the labor market’s relative resilience by historical and international standards, no immediate turnaround in weak employment trends is expected in early 2025.
Corporate Insolvencies Continue to Rise
The number of corporate insolvencies rose by 10.6% in October compared to September, reaching 2,012 cases—35.9% more than in October 2023. Between January and October, courts recorded 18,234 insolvency filings, 23.6% more than in the same period last year and 8.4% more than the pre-crisis average (2016-2019). The number of affected employees and expected claims were significantly higher than in 2023 (+12.6% and +118.3%, respectively) and well above the 2016-2019 average (+64.6% and +147.2%). These disproportionate increases suggest a growing number of insolvencies among medium-sized and large companies. Overall, the insolvency trend remains highly dynamic.
The more narrowly defined and timelier IWH Insolvency Trend for corporations and partnerships recorded 1,340 insolvencies in December, nearly the same as in November but still 24.3% higher than in December 2023. For the full year 2024, 15,580 corporate insolvencies were recorded, a 34.3% increase from 2023 and 39.1% above the 2016-2019 average. Based on leading indicators, the IWH expects insolvency figures to rise slightly further from February onwards.
Source: www.bmwk.de