Economic Key Facts Germany

With a gross domestic product of 4,305 billion euros in 2024, Germany is the third largest economy in the world after the United States and China and just ahead of Japan, making it the largest economy in Europe. In particular, exports of motor vehicles and vehicle parts as well as chemical products have made Germany the third largest export nation in the world to date. At 70%, the service sector accounts for the largest share of the country's gross domestic product (GDP).

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. 

The mood in the German economy has reached a low point. At the turn of the year 2024/25, 31 of the 49 associations surveyed in the annual survey conducted by the German Economic Institute (IW) rated the current situation in their industry even worse than a year ago.

There are many reasons for this: high costs for energy, labor, materials and taxes as well as excessive bureaucracy are a burden on companies and have led to them losing competitiveness in international comparison. The uncertain global situation and weak demand in China are also hampering exports and the political limbo caused by the collapse of the traffic light coalition is delaying necessary investments. 20 out of 49 industry representatives surveyed expect production to be lower in 2025, while only 16 expect an increase. Among the optimists are companies from the energy and water industries, the pharmaceutical industry, paper mills and logistics.

According to the ifo Institute, companies' business expectations also deteriorated significantly in December 2024 compared to the previous month (-2.6 points). At 84.4 points, the index is now back at roughly the same level as last year (January 2024: 83.9 points). In February 2022, i.e. before Russia's invasion of Ukraine, the index was still at 98.1 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 OECD, the share of tax and social security contributions in total labor costs for average earners was 47.9% for singles without children in Germany in 2023. This puts Germany in second place among the 38 member states of the OECD after Belgium and well above the OECD average of 34.8%, which has a significant negative impact on Germany's attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the UK (31.3%) or the USA (29.9%).

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 2024/25, 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 organizations on the development of GDP in Germany currently vary between +/-0.0% and +1.1% for the calendar year 2025; the most optimistic estimate of +1.1% comes from the German government:

German government significantly lowers growth forecast

The German government revised its economic forecast significantly downwards in January 2025. It now only expects economic growth of 0.3% for the current year. In its previous forecast from October 2024, the government had still expected gross domestic product to grow by 1.1%.

Federal Economics Minister Robert Habeck justified the worsened outlook with the high level of uncertainty due to US economic and trade policy under Donald Trump and the political situation in Germany. He also referred to measures in the growth initiative of the coalition government, many of which will not be implemented due to the end of the coalition. Habeck cited the shortage of labour and skilled workers, excessive bureaucracy and a lack of investment as further key problems.

According to the ifo Institute, companies' business expectations also deteriorated further in January 2025 compared to the previous month (-0.2 points). At 84.2 points, the index is now back at roughly the same level as last year (January 2024: 83.8 points). In February 2022, i.e. before Russia's invasion of Ukraine, the index was still at 98.1 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 large economies such as the UK (44.7%), the USA (38.1%) and China (33.9%) were significantly lower.

According to the OECD, the share of tax and social security contributions in total labour costs for average earners was 47.9% for singles without children in Germany in 2023. This puts Germany in second worst place among the 38 member states of the OECD after Belgium and well above the OECD average of 34.8%, which significantly reduces Germany's attractiveness as an investment location. The rate is also significantly lower in countries outside the EU, such as the UK (31.3%) or the USA (29.9%).

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 enables trend statements to be made.

The KPMG Global Economic Outlook 2024 also provides insights into global growth prospects, challenges and threats.

Our CEO-Outlook 2024/25, 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 +/-0.0% and +0.8% for the calendar year 2025:

None of the institutes expect the current year to remain in recession. However, these forecasts do not yet include the effects of the punitive tariffs announced by US President Trump. While the recently announced tariffs on imports from Canada, Mexico and China will primarily harm the affected neighbouring countries of the US, Germany will also be negatively affected indirectly. In 2026, German economic output is likely to be around 0.4% lower than without the new tariffs. Over the years 2025 and 2026, the costs are likely to total around 25 billion euros.

German exports rose slightly in November 2024. Exports increased by +2.1% compared to the previous month to EUR 127.3 billion. Compared to November 2023, however, exports recorded a drop of 3.5%. At 107.6 billion euros, imports were 2.9% below the October figure. Imports also fell by 2.9% compared to the previous year. The surplus in the trade balance thus increased significantly in November 2024 compared to the previous month, from 13.4 to 21.1 billion euros. Most German exports in November 2024 again went to the United States (+14.5% compared to October 2024), while most imports again came from China (-3.1% compared to October 2024).

Real (price-adjusted) incoming orders in the manufacturing sector fell by -5.4% in November 2024 compared to October 2024, adjusted for seasonal and calendar effects. The main reason for the negative trend was the large volume of major orders in other vehicle construction (aircraft, ships, trains, military vehicles) in October 2024. This high volume of major orders did not materialize in November 2024. As a result, new orders in this sector were 58.4% lower in November 2024 than in the previous month, adjusted for seasonal and calendar effects. In contrast, new orders in the other manufacturing sectors had comparatively little impact on the overall result: mechanical engineering (+1.2%) and the chemical industry (+1.7%) recorded slight increases compared to the previous month, while new orders in metal production and processing (-1.2%) fell slightly and in the less important pharmaceutical industry (-7.2%) fell somewhat more sharply.

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

German exports record surprising growth in December 2024

German exports rose surprisingly in December 2024. Exports increased by +2.9% compared to the previous month to 131.7 billion euros. Exports also recorded an increase of 3.4% compared to December 2023. At 111.1 billion euros, imports were also 2.1% higher than the November figure. Imports also increased by 4.5% compared to the previous year. The surplus in the trade balance thus rose from 19.2 to 20.7 billion euros in December 2024 compared to the previous month. In December 2023, it had stood at +21.1 billion euros. Most German exports in December 2024 once again went to the United States (-3.5% compared to November 2024), while most imports once again came from China

(-1.0% compared to November 2024).

Real (price-adjusted) new orders in the manufacturing sector rose by 6.8% in December 2024 compared to November 2024, adjusted for seasonal and calendar effects. The positive trend in new orders in the manufacturing sector in December 2024 is largely due to the significant increase in other vehicle construction (aircraft, ships, trains, military vehicles). Here, new orders were 55.5% higher than in the previous month due to several large orders. The growth in incoming orders in mechanical engineering (+8.6%) also had a positive impact on the overall result. By contrast, the decline in the automotive industry (-3.2%) had a negative impact.

For 2024 as a whole, incoming orders in the manufacturing sector were calendar-adjusted

-3.0% lower than in the previous year. In the first half of 2024, the downward trend observed since 2021 continued, while the second half of 2024 showed signs of stabilisation.

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

The German inflation rate rose again in December 2024. The price of goods and services rose by an average of +2.6% compared to the same month last year. In November, the inflation rate had already risen to +2.2%, after falling to its lowest level in over three and a half years in September at +1.6%. Consumers once again had to pay more for services. These again increased in price by +4.1% compared to the same month last year. Food cost +2.0% more, while energy was -1.7% cheaper. The core inflation rate also rose again to +3.1%.

Over the year as a whole, prices therefore rose by +2.2% in 2024. In 2023, the inflation rate was still at +5.9%, after reaching a historic high of +6.9% in 2022 due to the rise in energy prices caused by the Russian invasion of Ukraine.

By contrast, the number of companies planning price increases in the coming months fell slightly in November 2024: the ifo Institute's barometer for price expectations rose to 15.6 points in November 2024 (October 2024: 16.0 points).* This is primarily attributable to the manufacturing industry and service providers.

*The points indicate the percentage of companies that intend to raise their prices on balance (share of companies that intend to lower their prices minus the share of companies that intend to raise 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 organizations on the development of the inflation rate in Germany indicate that the value will remain at around the current level. For the calendar year 2025, the projections fluctuate between +2.0% and +2.4%.

Inflation falls at the start of the year

German inflation eased somewhat at the start of the year. Consumer prices rose by an average of +2.3% in January 2025 compared to the previous year. This was the first fall in the inflation rate after three consecutive increases. Energy became -1.6% cheaper in January compared to the same month last year. Food only increased in price by +0.8% compared to January 2024. By contrast, services became significantly more expensive: Here, the price increase at the beginning of the year was +4.0%. Core inflation, i.e. the inflation rate excluding food and energy, was also once again well above the European Central Bank's two per cent target at +2.9%.

However, the number of companies planning price increases in the coming months rose significantly in December 2024: The ifo Institute's barometer for price expectations rose to 19.7 points in December 2024 (November 2024: 15.8 points).* This is mainly due to the manufacturing industry and service providers.

*The points indicate the percentage of companies that intend to raise their prices on balance (proportion of companies that intend to lower their prices minus the proportion of companies that intend to raise 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 value will remain at around the current level. For the calendar year 2025, the projections fluctuate between +2.0% and +2.4%:

Trump's election is 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 then be up to 0.5 percentage points higher in 2026, according to Commerzbank's calculations.

December marks the start of the winter break on the labor market. As a result, unemployment and underemployment increased in December, as is usual in this month. The number of unemployed people in Germany rose by 33,000 to 2.807 million in December 2024 compared to the previous month of November 2024. However, this is 170,000 more than in December 2023. The unemployment rate increased by 0.1 points to 6.0% compared to November 2024.

Demand for labor remained subdued at the end of the year. The BA-X job index, which is based on job vacancies reported to the Federal Employment Agency, remained unchanged at 106 points from November 2024 to December 2024. In October 2024, it was still 9 points higher. Companies' willingness to hire declined in almost all sectors of the economy. In view of the subdued economic outlook, the number of unemployed is likely to continue to rise in the new year.

Number of unemployed rose sharply in January 2025

Although the number of unemployed people in Germany rose sharply in January 2025, it remains just below the three million mark. According to the Federal Labour Agency, 2.993 million people were out of work in the first month of the new year. There were now 186,000 more unemployed people in January 2025 than in the previous month. Compared to January 2024, the figure was 187,000 people higher. As a result, the unemployment rate rose significantly from 6.0% in December 2024 to 6.4%. This is the highest level in almost ten years. The last time the unemployment rate was even higher was in February 2015 at 3.017 million.

An increase in January is generally typical for the time of year, as many temporary employment contracts end at the end of the year and weather-dependent jobs, such as in construction, are lost at the same time. However, it is not only the usual seasonal fluctuations that are causing problems for the labour market. The ongoing economic weakness is also leaving ever deeper marks. One indication of this is that demand for labour is continuing to fall. In January 2025, 632,000 vacancies were registered with the Federal Employment Agency. That is 66,000 fewer than in January 2024. Short-time work has recently increased significantly. According to projections by the Federal Agency, 293,000 employees were paid cyclical short-time work benefits in November 2024. In October 2024, the figure was 263,000 and in September 2024 221,000.

Although the number of insolvencies of partnerships and corporations in Germany fell slightly to 1,345 in November 2024 compared to the previous month, according to the Leibniz Institute for Economic Research Halle (IWH), this is 38% more than in November 2023. The current figure is also 52% higher than the average November figure for the years 2016 to 2019, i.e. before the coronavirus pandemic.

This puts the number of insolvencies at around the level of the 2009 financial crisis, when there were around 1,400 insolvent partnerships and corporations per month.

According to the credit reference agency Creditreform, the total number of corporate insolvencies in the calendar year 2024 rose by 22,400 cases, which is the highest figure since 2015 and represents an increase of 25%. This means that insolvency figures could soon be close to the highs of 2009 and 2010 again, when over 32,000 companies went bankrupt.

The reasons for this are the ongoing phase of economic weakness, which is being accompanied by a sharp rise in costs, including wages, non-wage labor costs and energy, as well as catch-up effects from the pandemic and delays in the economy adapting to new structural conditions.

German exports fall for the second year in a row in 2024

The value of German exports fell for the second year in a row in 2024. Adjusted for calendar and seasonal effects, exports fell by -1.0% in 2024 compared to the previous year, while imports decreased by -2.8%.

The total value of goods exported from Germany in 2024 - not adjusted for calendar and seasonal effects - was around 1.56 trillion euros. Imports totalled around 1.32 trillion euros. The foreign trade balance therefore closed with an export surplus of 239.1 billion euros in 2024. In 2023, the figure had been 217.7 billion euros.

In the final quarter of 2024, exports were one of the brakes on the German economy, which was stuck in recession: exports of goods "Made in Germany" were significantly lower than in the previous quarter.

The forecast for the current year is also gloomy: According to the German Wholesale, Foreign Trade and Services Association (BGA), around 80% of exporters expected a further decline in volumes and sales in 2025. The Ifo Institute, which regularly surveys the expectations of export-oriented sectors, recently stated that the situation looks particularly bleak for the automotive industry. Expectations in the metal industry have also been negative for more than a year.

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