The economic situation in Germany in November 2024

Economic development in Germany in the third quarter was somewhat more favourable than generally expected. According to the flash estimate of the Federal Statistical Office on 30 October, the gross domestic product (GDP), adjusted for price, calendar and seasonal effects, rose slightly by 0.2% compared to the previous quarter. In original values, it was also 0.2 % higher than in the same quarter of the previous year. The double decline in GDP, which many observers had expected and which would have defined a ‘technical recession’, thus did not materialise. However, GDP in the second quarter was revised downwards by 0.2 percentage points to -0.3 %.

According to the Federal Statistical Office, growth stimuli in the third quarter came primarily from government spending, but also from private consumption. By contrast, the trade balance (exports minus imports) is likely to have had a negative impact once again. On the production side, growth is likely to have been driven once more by the service sectors, while industrial production continues to be confronted with underutilised capacities and a weak order situation.

There were glimmers of hope in October with regard to the mood in companies and private households: at the beginning of the fourth quarter, the ifo business climate index rose again for the first time since May. Overall, companies assessed both their current situation and their business prospects as better than in the previous month. According to the GfK, consumer sentiment in Germany continued its cautious recovery in October, which began in the previous month. In particular, expectations regarding the future financial situation were again assessed somewhat more optimistically and provided a tailwind for the propensity to buy, causing it to climb to its highest level in more than two and a half years. The HDE consumer barometer also brightened in November for the first time after six months of declines.

The slightly positive economic development in the third quarter, together with the improved sentiment indicators at the current margin, suggests that the economic downturn will bottom out at the turn of the year 2024/25.

However, the latest indicators do not yet take into account the recent developments regarding the outcome of the US presidential election. Against this background, it cannot be ruled out that in the coming months there will be a renewed increase in uncertainty among private households and in companies, with a corresponding reluctance to consume and invest, which could further delay the expected economic recovery

Global economy remains stable, downside risks increase

Global demand for industrial products remains subdued. In August, global production rose by a seasonally adjusted 0.3% compared with the previous month and is thus 1.8% higher than in the same month of the previous year. The leading indicators are sending cautiously positive signals for the current development. The SENTIX economic index for the global economy rose by a further 0.9 points to 5.6 points in November. The S&P Global sentiment indicator also rose from 51.9 to 52.3 points in October, signalling a slight acceleration in the pace of the global economy. Sentiment among service providers brightened again after darkening in the previous month, and in industry, too, the index rose again for the first time after four consecutive declines in October, climbing +0.7 points to 49.4 points. Among other things, a brightening of sentiment in China's manufacturing sector contributed to this. Overall, however, the index remains slightly below the expansion threshold of 50 points, thus pointing to a continued weak development of production. In particular, the production of capital goods continues to be dampened in many places by high borrowing costs. The effects of the easing of monetary policy are not expected to be fully felt until later in 2025, when they will stimulate activity in these sectors again. Overall, international observers continue to expect below-average but robust global growth for both the current year and the medium term.

In August, global trade in goods continued its gradual recovery with a seasonally adjusted increase of 1.4% over the previous month. After the previous strong increase, the RWI/ISL Container Throughput Index fell slightly in September (from 134.3 to 134.0 points). Both container handling in Chinese ports and in the northern euro area fell slightly. However, the global container handling trend remains upward. Overall, international organisations continue to expect that the dynamics of world trade and world GDP will converge again after last year's trade weakness with growth rates of a good 3%.

The risks for global economic development and world trade have increased in view of the outcome of the US presidential election and the possible geopolitical implications. On the one hand, the announced tax cuts and deregulation could have a supportive effect. On the other hand, however, the uncertainty regarding the implementation of further measures announced during the election campaign is increasing geopolitical and economic uncertainty and may thus dampen global economic momentum. If the incoming US administration were to raise import tariffs across the board, as announced, this could severely disrupt the global economy and global trade and provoke a backlash.

Exports of goods in reverse gear again

The German export economy continues to tread water. In September, nominal exports of goods and services, after the previous increase, seasonally and calendar-adjusted, compared to the previous month, stagnated with a decline of 0.1%. While deliveries to both the EU (-1.8 %) and third countries (-1.6 %) declined, exports to the USA increased markedly by +4.8 %. In the more meaningful quarterly comparison, seasonally adjusted exports as a whole remained negative in the third quarter at -1.6 % compared to the previous quarter. By contrast, imports of goods and services expanded by 1.0% (seasonally and calendar-adjusted) compared with the previous month, while they increased by only 0.1% in a quarter-on-quarter comparison. Due to the significantly weaker development of exports compared to imports, the monthly trade surplus in September shrank again in seasonally adjusted terms from EUR 14.0 billion to EUR 12.4 billion.

Import prices fell in September, thanks mainly to falling prices for imported energy and raw materials, while export prices stagnated. The terms of trade thus improved slightly again by 0.6 % compared to the previous month. In real terms, imports are likely to have increased at a slightly higher rate than in nominal terms.

For the coming months, early indicators for export activity are currently painting a mixed picture: after the setback in August, incoming orders from abroad increased markedly in September, rising by a seasonally adjusted +4.4 % compared to the previous month. In particular, producers of capital goods recorded significant growth in orders from abroad, up +5.6 %. In a quarterly comparison, foreign orders were actually up by 5.3 %. According to the ifo export expectations, however, the lean period for German exporters is set to continue. In October, the indicator fell further and, at -6.7 balance points, is at its lowest level since January. In particular, the automotive and metal industries continue to expect significant export losses, while the expectations of electrical equipment manufacturers have brightened.

The German export economy is currently still being held back by the weak global industrial economy, even though cautious rays of hope can be seen in foreign orders. There are currently no signs of a sustained turnaround in foreign business in the final quarter. And the medium-term prospects for the export economy are also subdued – not least in view of the results of the US elections and the announcement of higher US import tariffs.

Production weak again recently

Production ended the third quarter on a weak note. In September, production in the manufacturing industry fell by 2.5% compared to the previous month, after adjustment for price, calendar and seasonal effects. According to revised data, output in August had still increased by 2.6%. The decline in production is being felt in many areas. Output fell by 2.7% in industry, 1.4% in construction and 2.1% in the energy sector.

Most of the individual sectors within industry recorded negative developments compared with the previous month: significant declines in production were seen in particular in important areas such as the manufacture of motor vehicles and motor vehicle parts (-7.8%), chemical products (-4.5%) and data processing equipment and electrical and optical products (-1.5%). By contrast, the areas of mechanical engineering (+1.7 %), metal products (+0.5 %) and food and animal feed (+1.5 %) were able to increase their output.

Production in the manufacturing sector thus continued its downward trend in September. The more meaningful quarterly comparison also shows a decline of 1.9% compared to the second quarter, with the slowdown being somewhat less pronounced in the construction industry (-1.4%) and slightly more pronounced in the energy sector (-2.3%).

In September, new orders in the manufacturing industry rose by 4.2 % in price, calendar and seasonally adjusted terms compared with the previous month, after falling by 5.4 % in August. In September, domestic orders rose by 3.6% and foreign orders by 4.4%. Even excluding major orders, which fluctuate greatly, new orders rose noticeably by +2.2% compared with the previous month.

The development of new orders continues to be determined by strong fluctuations in major orders. For example, other vehicle construction, which is typically characterised by large-volume orders, recorded a strong increase of 117.1% in September compared to the previous month. Growth was also achieved in other manufacturing sectors, such as data, electrical and optical equipment (+7.6%), motor vehicles/parts (+2.9%) and pharmaceutical products (+0.7%). By contrast, falls were reported in the areas of metal production (‑10.0 %), electrical equipment (-6.9 %), mechanical engineering (-3.6 %), metal products (‑1.4 %) and chemical products (-1.3 %).

In the less volatile and thus more meaningful quarterly comparison, new orders in the manufacturing sector increased by 4.2% overall in the third quarter, with particularly strong growth of 7.4% in the capital goods industry.

Industrial activity remains weak in view of the ongoing geopolitical uncertainties and the subdued order situation. The recent positive development of incoming orders, particularly from abroad, and the latest improvement in the ifo and S&P Global sentiment indicators suggest that industrial activity will bottom out at the turn of the year 2024/25.

Slight brightening in retail

Price-adjusted retail sales (excluding motor vehicles) rose by 1.2% in September compared to the previous month. Food sales fell slightly in September (-0.8%). Compared to the same month of the previous year, retail sales in September reported a real increase in sales of 3.9%. Internet and mail order sales rose again significantly in August by 3.1% (+18.8% compared to the previous year). By contrast, turnover in the hospitality industry in August fell by 1.3% (2.4% year-on-year) in a month-on-month comparison, adjusted for calendar and seasonal effects and prices; in nominal terms, it was 0.9% lower (+1.0% year-on-year). Price increases and consumer reluctance may have had a negative impact, as overnight stays by guests had risen to a new record high in August.

New car registrations rose significantly overall in October, by 11.7 %. Compared to the same month last year, the increase was also quite high at +6.0 %. In the more meaningful three-month comparison, registrations increased by 2.5 % compared to the previous period. New car registrations by private individuals in October showed an increase of 11.5 % compared to the previous month. The figures for the three-month period increased by 2.5 %. New car registrations by companies and self-employed persons rose by 11.8 % in October.
The mood of private households in Germany has recently brightened according to the HDE consumer barometer and the GfK consumer climate. According to the GfK forecast, the consumer climate will improve by 2.7 points to -18.3 points in November. This is the second consecutive increase and the highest level since April 2022. For October, the market research institute indicates an increase of 0.9 points to -21.0 points. According to the institute, positive effects recently came from improved income prospects and a greater propensity to buy.

The Ifo Business Climate for retailing (including cars) rose slightly in October, by 0.4 points to ‑25.2 points. Assessments of the current situation improved by one point to -16.3 points. Expectations remained virtually unchanged at -33.7 points. According to the Ifo survey, retail companies are increasingly planning price increases. Price expectations climbed from 19.1 points in September to 21.4 points.
After the disappointing developments of the past few months, the latest leading indicators suggest that consumer sentiment in Germany is stabilising. However, concerns about job security and geopolitical developments remain risk factors for a sustained recovery in consumer sentiment.

Inflation rate rises again to 2.0 per cent

The inflation rate, i.e. the increase in consumer prices within a one-year period, rose to +2.0% in October, having amounted to +1.6% in September. One of the main reasons for the latest increase was the further rise in food prices. In October, prices here were 2.3% higher than in the same month of the previous year, thus increasing at an above-average rate. At the same time, the price-dampening effect of cheaper energy weakened. Although energy prices continued to fall significantly year on year in October, by 5.5 per cent, the rate of decline was lower than in September, when it was 7.6 per cent. The negative year-on-year rates that have been observed for some time are likely to disappear soon due to the low energy prices since the fourth quarter of 2023 (basis effect). The core rate of inflation (excluding energy and food) rose again in October to +2.9 %. This was largely due to the continued above-average price pressure in the services sector compared with the previous year (+4.0 %).

Prices at the upstream economic levels continue to have a dampening effect on the inflation rate overall: producer prices fell by 1.4% in September compared to the same month last year and by 0.5% compared to the previous month. Prices for energy continued to be the decisive factor here. Import prices fell by 0.4% in August compared to the previous month and were thus slightly above their level of the previous year at +0.2%. Wholesale selling prices fell by 0.3 % in September compared with the previous month and by 1.6 % compared with the same month of the previous year.
On the spot markets, prices for natural gas have remained quite moderate in recent weeks, even though the TTF Base Load, at around 42 €/MWh, is currently 5 % above the level of the previous month. However, it is down 9 % on the same month of the previous year. Market expectations suggest that natural gas prices will remain below €40/MWh in the quarters ahead. The price of Brent crude was recently around €69/barrel, about 5% below the level of the previous month; compared to the previous year, it fell by about 10%.

Despite the fact that the dampening effect of falling energy prices will no longer be felt, inflation is expected to remain moderate for the rest of the year. The main reasons for this are the low price increases at the upstream distribution levels due to the comparatively low energy exchange prices, the previous tightening of monetary policy by the ECB, reasonable wage agreements and a normalisation of corporate profit margins.

Cyclical impact on labour market becoming more pronounced

The economic downturn is having a more pronounced impact on the labour market than before. The usual autumn revival is still barely materialising. According to revised data from the Federal Statistical Office, seasonally adjusted employment fell for the fourth time in a row in September (by 19,000 people). However, it still increased slightly (+0.1 %) compared to the previous year. At the same time, seasonally adjusted registered unemployment rose by 27,000 in October, and underemployment also increased markedly again by 13,000. While the use of cyclical short-time working fell slightly in August compared with July, the number of notifications of short-time working to the Federal Employment Agency (BA) increased again in October after the end of the holiday season. Following a significant increase in the previous month, employment subject to social security contributions fell by a seasonally adjusted 9,000 in August.

The leading indicators point to a continued gloomy development on the labour market: Although the jobs reported to the BA indicate that demand for labour is bottoming out, the IAB labour market barometer fell slightly again in October due to a noticeable deterioration in the unemployment component. The ifo employment barometer also indicates that companies are once again less willing to hire. As a result, a noticeable recovery in the labour market is not in sight for the rest of the year.

Leading indicator of corporate insolvencies rises significantly

The IWH Insolvency Trend for October shows 1,530 insolvencies of partnerships and corporations, an increase of 17.4% over the previous month (+47.5% over the same month last year). The IWH considers slight declines in insolvency figures to be possible in the coming months of November and December. According to the IWH, the current development is due to a combination of several factors: economic weakness, noticeable cost increases, catch-up effects of the pandemic, and structural challenges.