The economic situation in Germany in April 2024

The latest economic indicators show a gradual economic stabilisation, although the overall picture is still mixed: industrial production - particularly in the energy-intensive sectors - has recovered noticeably since the start of the year and construction output has risen sharply since the beginning of the year. In addition to favourable weather effects, the normalisation of the sickness rate - following the significant increase at the end of 2023 - is likely to have contributed to certain catch-up effects in production.

Trade in goods has also recently trended positively, with monthly fluctuations. At the same time, incoming orders in the manufacturing sector - without taking into account the high monthly fluctuations due to large orders - continue to trend downwards and reduce companies' order backlogs. Despite a gradual stabilisation of purchasing power and a sustained increase in employment, the trend in the retail sector remains weak.

Sentiment-based leading indicators are currently signalling an economic turnaround: According to the ifo Business Climate, business expectations in companies brightened noticeably in March and the current business situation also improved. The mood among private households in Germany, as measured by the GfK consumer climate and the HDE consumer barometer, has also recently shown signs of stabilisation.

Against the backdrop of the slight overall improvement in indicators, the economic research institutes expect the economy to stagnate in the first quarter of 2024 in their latest joint forecast, before a noticeable economic upturn occurs in the further course of the year as inflation rates fall, wages and incomes rise, the labour market remains stable and impetus from foreign trade increases. Nevertheless, there are still uncertainties surrounding the expected recovery, particularly with regard to geopolitical developments.

Global economic outlook brightens

In January, global industrial production shrank by 0.5% compared to the previous month, but was still up on the previous year (+1.2%). However, purchasing managers' indices in important German sales markets such as the EU have recently risen, and the S&P Global sentiment indicator has also improved slightly for the fifth time in a row, reaching 52.3 points for the month of March (February: 52.1 points). The index rose both in the manufacturing sector (from 50.3 to 50.6 points) and among service providers (from 52.4 to 52.5 points).

The reduction in increased inventories, particularly of intermediate goods, which is also likely to have benefited global trade, fits in with this picture. In January, global trade in goods increased by 0.9% compared to the previous month and current leading indicators point to a further upturn. The RWI/ISL Container Throughput Index continued its upward trend in February and now stands at 129.5 points. The North Range Index for European ports in particular increased significantly (from 101.0 to 104.0 points); without the noticeable decline in container throughput in the Chinese ports, the increase in the RWI/ISL Index would have been much higher. The restrictions on shipping traffic in the Red Sea do not appear to be having a significant impact on global trade at present.

The current data therefore supports the expectation of a recovery in global trade in the current year. Following the 1.9% decline in global trade in goods in 2023, the German economic research institutes expect trade in goods to grow by 1.3% this year and 2.2% in 2025 in their joint forecast, thus returning to the longer-term trend.

Recovery in foreign trade in sight despite a dip in exports

After a strong start to the year, exports underwent a correction in February. In February, nominal exports of goods and services fell slightly (-0.8%) compared to the previous month, adjusted for seasonal and calendar effects. Following the noticeable growth in goods trade with EU countries in January, which was partly due to large orders, there was a setback in February (-3.9%). In contrast, exports to other countries increased slightly compared to the previous month (+0.4%). Imports of goods and services again expanded significantly in February, rising by 2.8% compared to the previous month. While there were also declines in trade in goods with EU countries (-5.7%), imports from non-EU countries were significantly higher than in January (+14.7%). The monthly trade surplus fell from 22.9 billion euros in January to 17.6 billion euros on a seasonally adjusted basis as imports and exports moved in opposite directions.

Foreign trade prices in February continued to be characterised by the development of prices for imported energy, in particular natural gas. Import prices fell by 4.9% compared to February 2023; energy imports fell by 20.7% compared to the same month last year. Export prices also fell compared to the same month last year (-1.1%), also driven by significant price declines for exported energy.

The leading indicators currently point to a recovery in foreign trade: Ifo export expectations brightened significantly in March (from -6.6 to -1.4 points). Many more sectors are currently expecting exports to increase than in the previous month, such as the automotive and chemical industries. A decline in foreign business is expected for energy-intensive metal producers and processors, among others. The companies surveyed have also recently assessed order backlogs from abroad slightly better. However, incoming orders from abroad have so far remained weak, albeit with significant fluctuations. After a strong start to the year, exports underwent a correction in February. Overall, however, nominal exports of goods and services in the first quarter are still noticeably higher than in the previous quarter at +2.9%. Imports of goods and services are also currently up 2.0% on the previous quarter. Together with the more favourable signals from leading indicators, this supports the expectation of a moderate recovery in exports. An escalation in geopolitical and trade tensions continues to pose a risk to the development of foreign trade.

Second noticeable increase in production in a row

Production in the manufacturing sector increased by a strong 2.1% in February compared to the previous month, adjusted for price, calendar and seasonal effects. This is the second noticeable increase in a row. Industrial output also increased noticeably again by +1.9%. Previously, declines had been recorded since May 2023. At +7.9%, the construction industry recorded a strong increase, following a rise of 2.9% in January. In contrast, energy production fell again significantly by 6.5% at the current margin. The positive development of production in the construction industry over the past two months is likely to have been significantly influenced by the mild weather, while catch-up effects following the high number of sick days at the end of 2023 certainly also played a role in the considerable growth in manufacturing.

The economic sectors within industry developed differently: Significant increases in production were recorded in the chemical products (+4.6%), pharmaceutical products (+6.4%) and in the important motor vehicle/vehicle parts sector (+5.7%). In contrast, production in the equally important area of mechanical engineering (-1.0%), electrical equipment (-2.7%) and printed products (-2.6%) was reduced.

New orders rose slightly in February compared to the previous month (+0.2%), adjusted for price, calendar and seasonal effects; in January there had been a setback (-11.4%) after a strong rise in December (+12.0%). Most recently, an increase in domestic orders was recorded (+1.5%), while fewer orders were received from abroad (-0.7%). This was due to a sharp drop in orders from the eurozone (-13.1%). Orders from outside the eurozone increased by 7.8%. Once again, the previous month's comparison was characterised by the trend in large orders; excluding these, there was a drop of 0.8%.

In February, the development of incoming orders in the manufacturing industry also varied from sector to sector: Significant increases in orders were reported by mechanical engineering (+10.7%), pharmaceutical products (+6.6%) and chemical products (+3.1%). In contrast, order declines were recorded in the electrical equipment (-1.9%), metal products (-5.3%) and, above all, in the important motor vehicle and motor vehicle parts sector (-8.1%).

With the current data, the signs of a gradual industrial stabilisation are strengthening. Previously, sentiment indicators such as the ifo Business Climate and the Purchasing Managers' Index PMI had already pointed to this.

Disappointing start to the year for the retail sector

Price-adjusted sales in the retail sector (excluding motor vehicles) fell significantly by 1.7% in February compared to the previous month, having already declined in the previous three months. Compared to the previous year, the retail sector reported a real drop in sales of 2.6% in February. Food retailers also reported a decline in sales compared to the previous month and year (-1.3% and -1.6% respectively compared to the previous year). Internet and mail order sales fell by 4.2% in February (-6.0% year-on-year).

New car registrations by private individuals increased by 2.2% in March compared to the previous month, a decline of 9.9%. A more meaningful quarter-on-quarter comparison also shows a significant decline of 13.0%. New car registrations as a whole fell by 2.0% in March. On a quarterly basis, the decline amounted to 4.9%.

Sentiment among private households in Germany, as measured by the GfK consumer climate index and the HDE consumer barometer, has recently shown signs of bottoming out: The HDE consumer barometer rose for the third time in a row in April and, according to GfK, the consumer climate also increased slightly again in April, with a falling propensity to save and improved expectations of income development having a particularly positive impact. Overall, the leading indicators are moving slightly upwards, albeit at a low level. In the wake of rising wages and falling inflation rates, however, a gradual recovery in private consumption should materialise in the spring.

Another noticeable fall in the inflation rate

The inflation rate (price level increase within a year) was 2.2% in March; this is the lowest figure since April 2021. In January and February, the rate was 2.9% and 2.5% respectively. Inflation has thus been on a downward trend since March 2023. The core rate (excluding energy and food) fell to 3.3% (Jan./Feb.: 3.4% each). At -0.7%, food prices fell year-on-year for the first time since February 2015. Energy prices also fell again compared to the same month last year, most recently by 2.7% (Feb.: -2.4%). In the services sector, on the other hand, prices rose again slightly by +3.7% (Jan./Feb.: +3.4% in both cases).

A further slowdown in price momentum can also be observed at the upstream economic levels. Producer prices fell by 0.4% in February compared to the previous month and were 4.1% lower than in the same month last year. In January, the rate was -4.4%. The main reason for this was the fall in energy prices. Import prices in February were 4.9% lower than in the same month last year (-0.2% compared to the previous month). Wholesale sales prices fell by 3.0% in February compared to the previous year. Compared to the previous month, they fell slightly by -0.1%.

Prices for natural gas on the spot markets have recently fallen again. At around €28/MWh, the TTF base load is currently around 35% below the previous year's level. However, there has been an increase of around 6% compared to the previous month. Market expectations indicate that natural gas prices will hover around €30/MWh in the coming quarters.

In the coming months, factors that tend to continue to dampen inflation, such as price declines at upstream economic levels, will be offset by temporary upward effects resulting from the expiry of the VAT rate reduction on gas and district heating in April and a base effect from the introduction of the 49-euro ticket in May 2023. In view of the escalation of the conflict in the Middle East, the trend in oil prices also poses a risk to the development of energy prices; spot prices for Brent crude oil were recently around 10 per cent higher than in the previous month.

Only a weak spring recovery on the labour market

In view of the economic situation, the usual seasonal spring recovery on the labour market is somewhat weaker than usual: Unemployment increased by 4,000 people in March on a seasonally adjusted basis (seasonally adjusted), continuing the trend since summer 2022. Employment increased further in February (sb +16,000 people). Employment subject to social insurance contributions rose by 27,000 in January (FY). The reduction in employment in cyclically sensitive sectors such as manufacturing was more than offset by job growth in services. Cyclical short-time work rose slightly in January to around 190 thousand people and will remain in the range of 160 to 200 thousand in the coming months, according to the BA. Early indicators paint a mixed picture: the number of jobs registered with the BA continues to fall; the IAB labour market barometer and companies' willingness to hire according to ifo, on the other hand, brightened somewhat in March. Initially, the situation on the labour market is likely to continue to move sideways. The labour market is not expected to pick up until later in the year as the economy recovers.

Corporate insolvencies up on previous month

The early indicator IWH Insolvency Trend shows a further increase in corporate insolvencies of partnerships and corporations of 9% compared to the previous month of January to 1,297 cases in March 2024. According to the IWH, this is the highest figure since the IWH began collecting data in 2016 and is around 35% higher than the same month last year and around 30% higher than the March average for the years 2016 to 2019. The number of employees affected (largest 10% of companies) remained roughly at the same level as the previous month according to IWH data, but is still around 42% higher than in an average March before the coronavirus pandemic. However, positive early indicators suggest that insolvency figures could fall again from May, even if they are likely to remain above the pre-coronavirus level for some time.

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1 This report uses data available up to 12 April 2024. Unless otherwise stated, these are rates of change compared to the respective previous period based on price-, calendar- and seasonally-adjusted data.