Economic Key Facts Germany

With a Gross Domestic Product (GDP) of 4,186 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. 

In its World Economic Outlook published in October 2024 and therefore before the US election and the break-up of the collapse of the German coalition government in Germany, the International Monetary Fund (IMF) sees no turnaround for the weakening German economy. For the current year, the IMF is forecasting the weakest growth of the leading western G7 industrialised nations for Germany. The fund now expects zero per cent growth, which is 0.2 points less than predicted in July 2024. In the coming year 2025, German economic output will only grow by 0.8 per cent, 0.5 percentage points less than forecast in July. This would put Germany at the bottom of the league in 2025, together with Italy. Due to recent events and uncertainties as a result of the US election and the anticipated election in Germany, a further decline in German economic output and thus a recession is highly likely. The IMF sees budget consolidation and the sharp fall in property prices as the main reasons for the economic weakness. However, structural problems such as the shortage of skilled labour, the continuing weakness of industry and consumer restraint are also having a negative impact on the economic outlook.

However, according to the ifo Institute, companies' business expectations improved in October 2024 compared to the previous month (+0.9 points). At 87.3 points, the index is still at a significantly higher level than at the beginning of the year (January 2024: 83.8 points). In February 2022, i.e. before Russia's invasion of Ukraine, the index was still at 97.9 points.

The government spending ratio, which indicates the government's influence on an economy, is calculated as total government spending as a percentage of GDP. According to the International Monetary Fund, this amounted to 48.3% in Germany in 2023 and was therefore slightly below the EU average of 49.3%; however, other major economies such as the UK (44.7%), the USA (38.1%) and China (33.9%) were significantly lower.

According to the EU Commission and the OECD, the tax-to-GDP ratio, i.e. the ratio of total taxes and social security contributions to GDP as an indicator of the tax burden of an economy, was 42.1% in Germany in 2022, slightly above the EU average of 41.1%. Here, too, the rate in countries outside the EU such as the UK (37.9%) or the USA (25.6%) is significantly lower and has a positive effect on their attractiveness as an investment location.

Our Business Destination Germany 2024 study provides a current assessment of Germany as a business location by international investors. 350 CFOs from the largest German subsidiaries of international corporations from the most important investor countries were surveyed as part of the study to find out how they rate Germany as a business location. As this is the fourth time the study has been published every two years, it also contains insightful trend statements.

Our Global Economic Outlook also 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 were surveyed, including 125 CEOs in Germany, also provides assessments of the economic situation, generative AI, ESG and other current topics.

The current forecasts of German economic research institutes and government organisations on the development of GDP in Germany currently fluctuate between -0.2% and +0.3% for the 2024 financial year. The more recent forecasts in particular are more critical and assume only stagnation or a decline in economic output:

With the 20% tariffs on imports from the EU announced by Trump during his election campaign, the German Economic Institute (IW), for example, expects GDP in Germany to fall by 1.5% by the end of his term of office in 2028.

German exports fell in September 2024. Exports fell by 1.7% compared to the previous month to 128.2 billion euros. Exports were also down 0.2% compared to September 2023. Imports, on the other hand, were 2.1% higher than in August at 111.3 billion euros. Imports were also higher year-on-year this year, with an increase of 1.3%. The surplus in the trade balance thus fell from 21.4 to 17.0 billion euros in September 2024 compared to the previous month. Most German exports in September 2024 went to the United States (+4.8% compared to August 2024), while most imports came from China (+5.6% compared to August 2024).

New orders in the manufacturing sector rose by 4.2% in September 2024 compared to the previous month of August 2024 and also recorded an increase of 1.0% compared to September 2023. The positive trend in new orders in the manufacturing sector in September 2024 is due in particular to the significant increase in other vehicle construction (aircraft, ships, trains, military vehicles). Here, new orders were more than twice as high (+117.1%) as in the previous month due to several large orders.

Donald Trump's election as the new US president could have massive economic consequences for Germany, as the USA is its most important trading partner in foreign trade. Trump is seen as an advocate of protectionism. Trade restrictions in the form of import tariffs of 10 to 20%, for example, could cause major damage to the already struggling export-dependent German economy. This is because the sectors that are particularly affected by a trade war are already suffering: the automotive and manufacturing industries.

According to calculations by the Ifo Institute, German exports to the USA could fall by 15%. German car exports to the USA would be particularly hard hit at -32% and pharmaceutical exports to the USA at -35%.  Foreign trade with China could also fall by 10%, as Chinese companies would have less demand for German intermediate products due to lower exports to the USA.

The trend of falling inflation in Germany has come to an end for the time being. This is because it rose again in October 2024 - and surprisingly significantly. Consumer prices were 2.0% higher than in the same month last year - after 1.6% in September. Consumers had to pay more for services such as package holidays and insurance in particular. These became 4.0% more expensive compared to October 2023, while food cost 2.3% more. Energy, on the other hand, became 5.5% cheaper. The inflation rate excluding food and energy (core inflation) rose to 2.9%.

The number of companies planning price increases in the coming months also rose in October 2024: The ifo Institute's barometer for price expectations rose to 15.9 points in October 2024 (September 2024: 14.1 points).* Industrial companies, business-related service providers and retailers in particular are planning more price increases. By contrast, price expectations have fallen in the consumer-related service sectors and the construction industry.

*The points indicate the percentage of companies that intend to increase their prices on balance (percentage of companies that intend to reduce their prices minus the percentage of companies that intend to increase their prices). If all the 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 German economic research institutes and government organisations on the development of the inflation rate in Germany indicate that the figure will remain at around the current level. The projections for the 2024 financial year vary between +2.2% and +2.7%:

Trump's election is also likely to lead to a renewed rise in inflation. Higher US tariffs will strengthen the dollar against the euro, which will drive up inflation. In addition, the EU could impose tariffs on imports from the US in response to US tariffs. This would also increase inflation. Overall, inflation in the eurozone and in Germany could be up to half a percentage point higher in 2026, according to Commerzbank's calculations.

The autumn upturn normally causes unemployment to fall significantly in October. Not so this year. The number of unemployed people in Germany fell only slightly in October 2024. Compared to the previous month, unemployment fell minimally by 16,000 to 2.791 million people. That is 183,000 more than in the previous year. The unemployment rate remained unchanged compared to the previous month at 6.0%. The last time the unemployment rate was this high in October was ten years ago.

The weak economy is having an increasing impact on the labour market: employers' demand for employees continues to decline. While employment in the public sector is growing, jobs are increasingly being cut in the commercial sector. No recovery is currently expected in the second half of 2024.

Energy consumption in Germany is falling significantly. A large part of this is due to industry, which is consuming significantly less gas, electricity, oil and coal. In 2023, industry in Germany consumed 3,282 petajoules of energy. This was again 7.8% less than in the previous year. In 2022, industrial energy consumption was already 9.1% lower than in the previous year.

An important reason for the decline in both years was the fall in industrial production - particularly in energy-intensive sectors. Their production fell more sharply by 11.2% in 2023, dragging down overall energy consumption. These include the chemical industry with a 26.5% share of energy consumption and metal production and processing with 23.9%.

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