Quarterly Report Germany IV/2023: German economy not getting into gear

QIV-2023 QUARTERLY REPORT GERMANY

German economy not getting into gear Recovery still not happening

▪

The German economy is taking a long time to recover from the energy crisis. Following the pandemic-induced slump in GDP in 2020, economic activity is floundering yet again. For 2023 overall, we expect real economic output to be down by 0.4 percent.

▪

Industrial production faltering increasingly. High order backlogs are gradually thinning out while new orders are low. From January to October 2023, manufacturing output was 0.3 percent lower than in the same period last year.

▪

Foreign trade propping up growth. Net exports are positive but not because of rising exports, but lower prices reducing imports.

▪

German economy is heading for recession. Germany’s gross domestic product (GDP) in the third quarter 2023 was 0.1 percent down on the previous quarter following price, calendar and seasonal adjustment, after increasing 0.1 percent in the second quarter and stagnation in the first.

German economy not getting into gear | Recovery still not happening 20/12/2023

Content German economy ................................................................................................................................ 3 German economy treading water .......................................................................................................... 3 Foreign trade ......................................................................................................................................... 4 Labour market: employment at all-time high ......................................................................................... 6 New business weak at start of fourth quarter ........................................................................................ 7 Downward incoming orders and thin order books for industry .............................................................. 8 Order books thinning out and industrial production decreases ............................................................. 8 Capacity utilisation still above long-term average ............................................................................... 10 Growth in manufacturing revenue slims down to a slither .................................................................. 10 Business sentiment ............................................................................................................................. 11 Outlook ............................................................................................................................................... 12 Source ................................................................................................................................................ 14 Imprint ................................................................................................................................................ 14 Basic data for national accounts ..................................................................................................... 15

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German economy not getting into gear | Recovery still not happening 20/12/2023

German economy German economy treading water The German economy is still not on the way to recovery. In the third quarter of 2023, Germany’s real gross domestic product (GDP) contracted 0.1 percent compared to the previous quarter following seasonal and calendar adjustment, after nudging up 0.1 percent in the second quarter and stagnating in the first, according to figures from the German Federal Statistical Office. Compared to the prepandemic level of GDP in the fourth quarter 2019, GDP was only 0.3 percentage points higher, following price, seasonal and calendar adjustment.

Year on year, German economic output was down again. Real GDP was 0.4 percent lower than in the third quarter 2022, following price and calendar adjustment (minus 0.8 percent before calendar adjustment). Compared to the other major EU member states, Germany was at the bottom of the league. Spain’s gross domestic product was up by 1.8 percent in the same period, and that of France by 0.7 percent. In Italy, economic output stagnated. The GDP of both the EU and the euro area was up by a marginal 0.1 percent, according to the latest Eurostat figures.

Growth in real GDP in percent 12 10 8 6

2.7

3.2

4

1.1

1.0

2

1.8

0 -2 -4 -3.8

-6 -8 -10 -12 I

II

III IV

2017

I

II

III IV

2018

I

II

III IV

I

2019

II

III IV

2020

I

II

III IV

2021

I

II

III IV

2022

I

II

III IV

2023

change over previous year quarter change over previous quarter change over previous year Source: Federal Statistical Office

Germany’s economic output was generated by a workforce of around 46 million employees in the third quarter 2023. That is 337,000 people or 0.7 percent more than one year ago and represents a new record high in employment. The labour volume of all workers measured in hours nonetheless remained steady year on year, according to the initial preliminary calculations from the Institute for Employment Research (IAB), as every worker worked an average of 0.7 percent less labour hours than in the third quarter 2022.

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German economy not getting into gear | Recovery still not happening 20/12/2023

Gross value added declined by 0.7 percent in the third quarter 2023 compared to the same period last year. The individual sectors trended divergently. While agriculture and forestry recorded the strongest growth, rising four percent, gross value added in manufacturing decreased 1.8 percent. The construction industry managed to increase activity for the first time in five quarters, rising 1.2 percent.

Among other services, the information and communication services climbed the most, expanding 2.1 percent, followed by other service providers (up 1.1 percent) and property service providers (up one percent). Corporate service providers only increased gross value added by a modest 0.3 percent.

Retail, transport and hospitality, and public service providers, which both account for more than one sixth of total gross value added, both decreased, going down by 0.4 percent and 0.5 percent respectively. Among financial and insurance service providers, gross value added contracted 1.2 percent.

On the expenditure side of GDP, price-adjusted private consumption spending was down by two percent in the third quarter 2023 year on year, which is more than twice the drop recorded in the first two quarters of the year. Apart from spending on transport and communications, which increased 3.1 percent, consumption was down in all other areas. Consumers spent less, above all, on household furnishings and household goods (down 6.2 percent), hotels and restaurants (down 4.8 percent) and shoes and clothing (down 4.5 percent). Spending was also down by more than usual on food, tobacco and beverages (down three percent), housing, water and energy (down 2.7 percent) and leisure, entertainment and culture (down 2.7 percent). Public consumption expenditure did not contract as much, slipping 1.6 percent in the third quarter. All in all, consumption expenditure in the summer quarter was 1.9 percent down year on year.

After trending upwards in the first six months of the year, gross fixed capital formation lost a lean 0.2 percent in the third quarter year on year following price adjustment. While investment in plant and equipment was still pointing up, rising 1.1 percent year on year, construction investment was down for the sixth quarter in a row, dropping one percent. The lull in construction was primarily due to a marked reduction in residential construction, which dropped just under two percent. Commercial and public construction both posted a narrow rise. Investment in other assets (patents and licences) also lost ground, going down 0.6 percent.

Exports of goods and services dropped by a substantial 3.8 percent following price adjustment in the third quarter 2023. Goods exports were down by as much as 4.8 percent compared to the previous year, while services exports tread water with a minimal nudge up of 0.1 percent. Among imports, the import of goods plunged by 8.2 percent following price adjustment. Imported services, on the other hand, rose again, going up by 2.5 percent on the back of strongly increased travel. Imports overall contracted more than exports, going down by a total of 5.7 percent. Net exports thus contributed 0.9 percentage points to growth.

Foreign trade German foreign trade continued to lose steam considerably in the third quarter 2023. German exports dropped by 25.4 billion euros or 6.3 percent down to 379 billion euros (country-specific seasonally adjusted data are not available). The steepest falls in absolute figures were in trade with Austria (down 4.79 billion euros or 19.8 percent) and with China (down 2.64 billion euros or 9.9 percent). Exports to the Visegrád Group, Poland, the Czech Republic, Slovakia and Hungary, were also considerably lower, down 3.92 billion or 7.7 percent year on year. Exports to euro partner countries France and Italy also dropped substantially, falling 1.5 billion euros in each case. Trade with the United States was also

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German economy not getting into gear | Recovery still not happening 20/12/2023

downward, with German exports falling 1.31 billion euros or 3.2 percent. The EU sanctions impacted trade with the Russian Federation, bringing exports to the country down by more than one third (down 1.21 billion euros or 37.2 percent). Exports to Mexico were up by a solid 658 million euros or 15.3 percent.

German exports and imports in Q3 2023 in selected countries Year-on-year change increase (+) or decrease (-) in exports in million euros

Importe Zu- (+) bzw. Abnahmen (-) in %

in million euros

in %

Austria

19 347

- 4 790

-

19.8

Norway

6 058

- 17 109

-

73.8

China

24 051

- 2 639

-

9.9

China

37 770

- 10 074

-

21.1

Belgium

14 656

- 2 312

-

13.6

Russia

618

- 7 124

-

92.0

Switzerland

16 205

- 1 846

-

10.2

Netherlands

24 938

- 5 428

-

17.9

France

27 740

- 1 585

-

5.4

Belgium

13 270

- 4 234

-

24.2

Italy

19 514

- 1 563

-

7.4

Austria

13 140

- 2 425

-

15.6

Poland

22 218

- 1 527

-

6.4

Great Britain

8 916

- 1 739

-

16.3

USA

39 739

- 1 314

-

3.2

USA

22 895

- 1 732

-

7.0

Czech Republic

12 490

- 1 312

-

9.5

Ireland

6 256

- 1 441

-

18.7

Russia

2 045

- 1 211

-

37.2

Switzerland

12 461

- 1 174

-

8.6

Hungary

7 886

-

976

-

11.0

South Africa

2 769

- 1 028

-

27.1

Netherlands

26 759

-

931

-

3.4

India

3 383

-

868

-

20.4

Norway

2 040

-

751

-

26.9

Colombia

271

-

797

-

74.6

Ireland

2 314

-

742

-

24.3

Bangladesh

1 989

-

726

-

26.7

Mexico

4 966

+

658

+

15.3

Libya

1 251

+

707

+ 130.2

Total

378 995

- 25 424

-

6.3

Total

325 763

- 63 301

-

16.3

Sources: Federal Statistical Office, own calculations

German imports in the third quarter 2023 were just under one sixth lower than in the same quarter last year, down 63.3 billion euros or 16.3 percent to 325.8 billion euros. The largest nominal drop by far was in imports from Norway. The lower price of gas now compared to one year ago brought imports down 17.1 billion euros which is a whopping 73.8 percent. Imports from China were also much lower than in the same period last year, down by 10.1 billion euros or 21.1 percent. As Germany is no longer

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German economy not getting into gear | Recovery still not happening 20/12/2023

receiving gas from the Russian Federation, imports from the country were decimated (down 7.12 billion euros or 92 percent). Imports from the Netherlands and Belgium also recorded above-average drops, contracting 5.43 billion and 4.23 billion euros respectively. Compared to these plunges, the reductions in imports from the United States at minus 1.73 billion euros or seven percent and from Switzerland (minus 1.17 billion euros or 8.6 percent) seem relatively modest. The doubling of imports from Libya indicates that it has become an alternative energy supplier for Germany.

Labour market: employment at all-time high The economic slowdown has not yet affected employment levels. According to preliminary data from the German Federal Statistical Office, the number of people in employment rose by 15,000 in October 2023 compared to the previous month after seasonal adjustment. Compared to one year ago, the number of people in employment was up by as many as 272,000 or 0.6 percent to 46.26 million, setting a new record high. Compared to February 2020, the last month before the outbreak of the pandemic, the number of people in employment was 564,000 higher following seasonal adjustment.

Employment subject to social security contributions also set a new record. According to the most recent projections from the Federal Employment Agency, a total of 35.09 million people were in employment subject to social security contributions in September 2023 (latest figure available). That is 195,000 people more than one year ago and around one million people more than in February 2020 after seasonal adjustment. The number of workers in full-time employment subject to social security contributions was 93,000 or 0.4 percent higher than one year ago, and the number of workers in parttime employment subject to social security contributions 102,000 or one percent higher.

German labour market* 36

4 Unemployed persons (right axis)

34

3

32

2 Employed persons covered by social security (left axis)

30

1

28

0

26

2015 2012

2016 2013

2017 2014

2018 2015

2019 2016

2020 2017

2021

2022

2 2023

-1

Difference in the number of workers making social security contributions from the same month last year (right axis) *seasonally adjusted in million Source: Federal Employment Agency

The other forms of employment showed very little change compared to last year. The number of selfemployed people including contributing family members increased by 2,000 to 3.91 million in the third quarter 2023 compared to the previous quarter, with no change year on year. The number of people exclusively in marginal employment in September 2023, was 150,000 or 4.6 percent higher than

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German economy not getting into gear | Recovery still not happening 20/12/2023

one year ago, at 3.42 million, according to preliminary projections from the Federal Employment Agency.

In November, the number of unemployed people increased by 171,700 or 7.1 percent year on year, up to 2.61 million. Following seasonal adjustment, unemployment rose by 22,000 from October to November. The unemployment rate in November 2023 was 5.9 percent as calculated by the Federal Employment Agency or 3.1 percent according to the ILO definition.

New business weak at start of fourth quarter In October 2023, the order intake of industry was 3.7 percent lower than in September 2023 following seasonal and calendar adjustment, according to preliminary figures from the Federal Statistical Office. The September figures were upwardly revised from up 0.2 percent to up 0.7 percent on the previous month. This revision did not impact the third quarter result much. In the third quarter 2023, industry received 3.8 percent fewer orders than in the spring months following seasonal and calendar adjustment. Compared to the third quarter 2022, orders were down by a bigger 6.8 percent. Looking at the origin of orders in the third quarter 2023, new orders from at home were 7.1 percent lower than in the second quarter 2023. Demand from the euro area also dropped substantially quarter on quarter (down six percent). Overall, foreign orders were only 1.5 percent down on the previous quarter due to increased demand from third countries (1.6 percent).

New orders, manufacturing 120

75

115

65

110

55

105

45

100

35

95

25

90

15 0.5

85 80

0.0

75 70

5 -3.8

-2.7

-5 -15 -25

65

-35 2019

2020

2021

2022

2023

Change over previous year, two-month-average, in percent (right axis) Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent Source: Federal Statistical Office

Among the main groups of industrial goods, the quarter-on-quarter trends after seasonal and calendar adjustment were as follows. Demand for consumer goods stagnated compared to the second quarter 2023 and was down by a substantial 4.1 percent year on year. Orders received by capital goods producers turned down abruptly following six months of growth, with 5.9 percent less

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German economy not getting into gear | Recovery still not happening 20/12/2023

orders than in spring. Demand from abroad was only down on the previous quarter by 2.6 percent.

Domestic orders, on the other hand, plunged 11.7 percent. Producers of intermediates collected 0.9 percent less orders in the third quarter 2023 than they had in spring and a hefty 8.8 percent less year on year.

Across the manufacturing sector, the trends in incoming orders were very mixed in the third quarter 2023. Machinery manufacturing, one of Germany’s principal industries, received 3.4 percent less orders in the third than in the second quarter following seasonal and calendar adjustment. The drop registered by vehicle and vehicle component manufacturers was almost twice that, down 7.7 percent over the same period. Producers of data processing equipment, and electronic and optical products even recorded double-digit falls in new orders. The producers of metal products only saw their order intake nudge down 0.8 percent and the chemical industry also registered a slim negative of 1.7 percent. Demand for pharmaceutical products, in contrast, was up on the previous quarter by 5.6 percent in the third quarter 2023.

Downward incoming orders and thin order books for industry According to ifo Institute figures, the reach of orders in hand in manufacturing in September 2023 was lower year on year for the sixth consecutive month, down to seven production months. Among the main industrial groups, the producers of intermediates registered a minimal drop of 0.1 down to 3.7 production months. The order backlog of capital goods producers dropped for the seventh month in a row, down to 9.6 production months, only one month above the long -term average. The order books of consumer goods producers are still comparatively full. At 3.4 production months, they are well above the long-term average of 2.4 months and only just under the record level of 3.6 months.

According to the Federal Statistical Office, the price-adjusted reach of orders in hand in manufacturing in September 2023 was 0.8 percent lower than in August following seasonal and calendar adjustment. In the space of one year, the order backlog has decreased by more than five percent. While the order backlog of domestic orders was only marginally down on September 2022, the order backlog of foreign orders contracted by a much larger 7.1 percent over the same period.

Despite the recent downward trends, the order backlog for the manufacturing sector overall as of September 2023 was still around 24 percent higher than before the Covid pandemic.

Order books thinning out and industrial production decreases Like incoming orders, production was also down slightly at the start of the fourth quarter. In October 2023, industrial production was 0.5 percent down on the previous month following seasonal and calendar adjustment, after falling 1.7 percent in September. At the same time, construction activity contracted by 2.2 percent compared to the previous month. Going the other way, energy production expanded robustly in October (up 7.1 percent).

This represents a continuation of the downward trend in industrial production. In the third quarter, industrial production was already 2.1 percent lower than in the second quarter 2023 following seasonal and calendar adjustment. Output was also down year on year, turning around after four quarters of continuous upward motion with a decrease of 1.9 percent. Energy production was 6.2 percent down on the second quarter 2023 following seasonal and calendar adjustment. Year on year, energy production was down by more than one fifth (22.2 percent). Activity in the construction sector only

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German economy not getting into gear | Recovery still not happening 20/12/2023

dropped by a lean 0.3 percent quarter on quarter, with a modest increase on the third quarter 2022 (up 0.8 percent).

Production development in the manufacturing industry year on year change in percent 2021 2022 2023 year Q1 Q2 Q3 original value calendar adjusted

compared to previous period in percent 2023 2023 Q1 Q2 Q3 Aug Sep Oct seasonally and calendar adjusted

Production

3.7

-0.7

0.1

-0.2

-2.4

1.6

-1.2

-2.0

-0.1

-1.3

-0.4

Industry

4.8

-0.3

1.3

0.9

-1.9

1.1

-0.8

-2.1

0.6

-1.7

-0.5

Intermediate goods

8.3

-3.2

-5.0

-5.3

-5.3

1.4

-1.7

-1.2

0.6

-2.0

-0.4

Capital goods

2.7

1.7

9.5

8.6

2.4

1.8

0.1

-2.9

1.4

-0.3

-1.0

Consumer goods

2.8

0.6

-3.8

-3.0

-4.8

-1.5

-0.6

-2.1

-1.5

-4.6

0.4

Energy

2.9

-1.8

-10.8

-20.0

-22.2

-0.6

-10.1

-6.2

-2.3

-2.8

7.1

Construction industry

-1.3

-1.9

-2.1

-0.1

0.8

4.5

-1.1

-0.3

-2.8

1.5

-2.2

Construction industry proper

0.9

1.4

-1.3

0.8

0.4

3.6

-0.8

-1.4

-3.2

2.2

-2.6

Finishing industry

-3.3

-5.1

-2.9

-1.1

1.1

5.5

-1.5

0.8

-2.4

0.8

-1.9

Sources: Federal Statistical Office, own calculations

Among the main industrial groups, the producers of intermediates were 1.2 percent down on the second quarter 2023 after seasonal and calendar adjustment and also produced less than one year ago (down 5.3 percent). The production of capital goods was 2.9 percent lower than in the previous quarter but 2.4 percent higher than in the third quarter 2023. Consumption goods was also weak, with output 2.1 percent lower than in the previous quarter. Year on year, the reduction was even more pronounced at 4.8 percent.

Looking at the development of the individual industries in the third quarter 2023 compared to the same period last year shows a very divergent picture. The only industries to expand were vehicle production (up 5.5 percent) and other transport equipment (up 11.2 percent). The electro industry (down 0.7 percent) and machinery manufacturing (down 1.3 percent) reported negative quarter on quarter growth for the first time in a long time. Production drops among energy-intensive industries were even higher. Output in the chemical industry was down 8.7 percent, in metal production and processing down 2.9 percent, and in paper down 12.7 percent. The steepest fall in production was registered by manufacturers of glass and ceramics, with a tumble of 15.5 percent.

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German economy not getting into gear | Recovery still not happening 20/12/2023

Production, manufacturing 110

40 30

100

20 10 1.1

90

0 -0.8

-2.1 -1.4 -10

80

-20 70

-30 2019

2020

2021

2022

2023

Change over previous year, two-month-comparison, in percent (right axis) Volume index in manufacturing, two-month-average, seasonally adjusted (left axis) Change over previous quarter (q-o-q), in percent Source: Federal Statistical Office

Capacity utilisation still above long-term average The utilisation of production capacities in the manufacturing sector registered its second clear consecutive drop at the start of the fourth quarter 2023. Industrial capacity utilisation was only at 82 percent, according to ifo Institute figures. This is one percent lower than in the previous quarter.

Compared to the average over the last ten years, utilisation was 2.3 percentage points lower. Capacity utilisation in the manufacturing sector excluding food dropped even more, down 1.3 percentage points. At 81.7 percent, capacity utilisation here was 2.9 percentage points lower than the longterm average.

Capacity utilisation dropped across almost all industries in the manufacturing sector. Capacity utilisation among producers of data processing equipment recorded the most pronounced drop, falling four percentage points down to 85.7 percent. As with vehicle production (85.4 percent), machinery manufacturers (85.7 percent) and the producers of metal products (79.4 percent), capacity utilisation was higher here than before the outbreak of the pandemic but lower than the long-term average.

Capacity utilisation in chemicals (75.1 percent), pharmaceuticals (79.8 percent), furniture (79.5 percent) and textiles (70.9 percent), was much lower than the long-term average in each case.

A positive exception here was the food, tobacco and beverages industry where capacity utilisation climbed up to 83.3 percent, which is 3.2 percentage points above its average over the last ten years.

Growth in manufacturing revenue slims down to a slither In the third quarter 2023, sales in the manufacturing sector were 0.5 percent lower year on year after price adjustment, which represents a turnaround following an increase of 3.1 percent in the second quarter. Domestic sales decreased 2.5 percent. Although foreign sales were up by 1.4 percent year on year, buoyed by a 3.7 percent increase in euro area sales, revenue from third

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German economy not getting into gear | Recovery still not happening 20/12/2023

countries stagnated. For the first nine months of the current year, revenue was one percent up in real terms on the same period last year (domestic revenue: down 1.9 percent; foreign revenue: up 3.8 percent).

In contrast to last year, in which sales were inflated in nominal terms on account of the steep increases in raw material prices and consequently much higher than production, manufacturing revenue in the first nine months of this year was only 2.3 percent higher than in the same period last year, while production stagnated. A look at the individual industries shows the following picture.

The energy-intensive industries recorded double-digit drops in sales, with chemicals down 17.8 percent and paper down 14.7 percent. The producers and processors of metal products, and non-metallic minerals saw more moderate decreases in sales of 4.4 percent and 0.9 percent respectively. The electro industry, other transport equipment, motor vehicles and motor vehicle components all posted double-digit rises in revenue. Revenue in the strongly export-focused machinery manufacturing industry rose 9.4 percent in the first nine months of 2023.

Manufacturing revenue* (January till September 2023)

Motor vehicle production

14.1

Other transport equipment production

12.2

Electronic industry

10.0

Machinery manufacturing

9.4

Food, beverages, tobacco

8.4

Textiles, fashion, leather

3.5

Manufacturing

2.3

Pharmaceuticals

-0.5

Glass, ceramics, stone, industrial minerals

-0.9

Metal production and metalworking sector

-4.4

Print industry

-6.2

Paper and pape

-14.7

Chemical industry Energy-intensive

-17.8 -28.9

*Change in percent, year on year Source: Federal Statistical Office

Business sentiment The ifo business climate index for Germany rose for the third consecutive time in November. As in October, both current business and business prospects improved and contributed to the brightening in sentiment. This does not yet represent a turnaround as the index only rose by a total of 1.4 index points in the space of three months. Trends among the individual sectors were very mixed. In retail and wholesale, both current business and prospects for the next six months rose substantially. In services, on the other hand, companies were more pessimistic both about their current situation and their prospects for the immediate future. In mainstream construction, business sentiment brightened a little for the second month in a row, but the large majority of companies were still negative both about current business and their expectations for the next six months. In manufacturing, the business climate index climbed substantially in October after treading water for the previous two months. Companies were more satisfied with current business

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German economy not getting into gear | Recovery still not happening 20/12/2023

and less sceptical about the future. This was particularly the case among energy -intensive industries. Companies are still concerned about the low level of new business though. As the majority of companies surveyed still rate both the current situation and the prospects for the upcoming six months negatively, the ifo Business Cycle Clock for manufacturing is still in the recession quadrant. Export prospects are the silver lining here, having improved for the second month in a row. Here too, however, most export-oriented companies were pessimistic and have been since June 2023. ifo Business-Cycle Clock German manufacturing* 30 Boom

Upswing Jan 2021

Business expectations for the next six month

20 10

Jan 2017

0

Jan 2020

-10 -20

Jan 2019

Jan 2023

November 2023

Jan 2018

Jan 2022

-30 -40 -50 Reccession

Downswing

-60 -60

-50

-40

* Balances, seasonally adjusted

-30

-20

-10

0

10

20

30

40

50

60

Assesment of current business situation

Source: ifo Institut

Outlook The German economy has not managed to recover as quickly from the energy and inflation shock as it did from the Covid year of 2020. High inflation is eating away consumer purchasing power and narrowing its contribution to GDP growth. While central bank efforts to combat inflation by hiking interest rates up steeply took a long time to reduce inflation, they quickly brought tremors to the property market. The construction industry was also badly hit, with companies particularly in residential construction faced with dramatically plunging building permit numbers and cancellations. Economic growth has therefore been extremely weak this year.

Private consumption expenditure was one percent down on the previous year in the first three quarters of the current year, which is a slightly stronger fall than we expected. The downward trend in private consumption should flatten out in the further course of the year. Disposable incomes should start to rise again in real terms now that inflation rates have fallen substantially since the middle of the year and on account of the relatively high nominal wage agreements. The steep increase in employment recently should also prop up purchasing power. Consumer sentiment has improved

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German economy not getting into gear | Recovery still not happening 20/12/2023

somewhat according to the latest figures. After falling for three consecutive months, it recovered slightly in December, according to German consumer research company GfK. The consumer climate index published by German Retail Federation, HDE, has risen continually since its low in October 2022, with the exception of one month. Most recently, in early December 2023, it registered a pronounced rise of 2.5 index points. The first indicators for the fourth quarter also point towards a pick-up in consumption.

Retail sales were up by more than one percent in October 2023 compared to the previous month after price adjustment. We therefore expect private consumption to rise slightly in the fourth quarter and still anticipate a drop in private consumption for the year overall of 0.5 percent compared to 2022. Public consumption expenditure was 2.4 percent down in the first three quarters of the current year compared to the same period last year. The downtrend matches our expectations, so we still expect public consumption expenditure to drop 2.5 percent in the year overall. In sum, this would result in a decrease in consumption expenditure in 2023 of 1.1 percent.

BIP forecast for 2023: Change in real economic output over the previous year in percent

BDI 2023

Federal Govrnment

Board of Experts

2023

2023

GDP, real

-0.4

-0.4

-0.4

Consumption

-1.1

-

-1.3

- Private Consumption

-0.5

-0.5*

-0.8**

- Public Consumption

-2.5

-2.2

-2.4

0.1

0.4

0.2

- Machinery and Equipment

3.5

3.8

3.1

- Construction

-2.0

-1.3

-1.3

- Other

-0.5

0.0

-0.2

Exports

-1.5

-1.1

-1.2

Imports

-2.5

-1.5

-1.9

Net Exports, Economic Output

0.4

0.2

0.3

Investment

Sources: Federal Government (October 2023; * Private households and private non-profit institutions serving households), Board of Experts (November 2023); ** including private non-profit organizations, own calculations

Investment in plant and equipment increased by more than four percent in the first three quarters of the year compared to the same period last year. On account of the steep increase at the beginning of the year, we already upwardly revised our forecast for the annual result here this summer (BDI 2023). Investment continued to increase over the spring and summer quarters, but with much less

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German economy not getting into gear | Recovery still not happening 20/12/2023

momentum. The thinning backlog of orders among capital goods producers indicates that the investment cycle is coming to an end. Investment in plant and equipment is set to drop slightly in the fourth quarter but we still believe it will increase 3.5 percent in 2023 overall. Our forecast for construction investment of minus two percent does not need to be revised either. The development in the last three quarters held no surprises. We do not expect a slump in the fourth quarter. While residential construction is set to fall, public construction and commercial civil engineering have been quite positive recently. Regarding investment in other assets (software, research and development) we still anticipate a drop of 0.5 percent. In sum, we expect gross fixed capital formation to increase by 0.1 percent year on year.

In the first three quarters of the current year, exports dropped 2.5 percent year on year according to the national accounts. This is a significantly more pronounced fall than we expected, and the latest figures indicate a clear slowdown in foreign trade. In September and October, exports were down month on month following seasonal and calendar adjustment. We are therefore revising our growth forecast for real exports down from minus 0.5 percent to minus 1.5 percent. Imports are trending similarly and were already 2.5 percent down year on year in the first three quarters of the year. The latest month on month figures, show imports falling for the fifth consecutive time so we now expect imports to drop by 2.5 percent. Net exports would thus make a positive contribution to growth of 0.3 percentage points.

All in all, we expect Germany’s gross domestic product this year overall to decrease by 0.4 percent compared to last year in real terms. This is based on assumptions that inflation will continue to decrease until the end of the year and that the negative impact of the Federal Constitutional Court judgment on the application of the debt brake will not materialise before the year is out.

Source BDI (2023). Quarterly Report Germany III / 2023. Recovery delayed | Global trade dampens prospects.

27 September 2023. Berlin.

Imprint

Author

Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29 10178 Berlin T: +49 30 2028-0 www.bdi.eu

Thomas Hüne T: +49 30 2028-1592 t.huene@bdi.eu

German Lobbyregister Number R000534

Dr. Klaus Günter Deutsch T: +49 30 2028-1591 k.deutsch@bdi.eu

This report is a translation based on „Quartalsbericht Deutschland IV / 2023: Deutschlands Konjunkturmotor springt nicht an | Erholung lässt weiter auf sich warten “, as of 11 December 2023.

Editorial / Graphics

Marta Gancarek T: +49 30 2028-1588 m.gancarek@bdi.eu

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German economy not getting into gear | Recovery still not happening 20/12/2023

Basic data for national accounts GDP (price, seasonally and calendar adjusted) Change over previous period in percent 2022

2023

2021

2022

Q3

Q4

Q1

Q2

Q3

Consumption

2.0

3.2

0.6

-0.8

-0.9

0.0

-0.1

-Private Consumption

1.5

3.9

1.4

-1.1

-0.8

0.2

-0.3

-Public Consumption

3.1

1.6

-1.4

-0.1

-1.4

-0.4

0.2

Investment

-0.2

0.1

1.0

-1.3

1.7

-0.3

0.6

-Construction

-2.6

-1.8

-0.6

-2.0

2.7

-0.9

0.4

-Machinery and Equipment

2.8

4.0

4.2

-1.5

2.1

0.7

1.1

-Other

2.1

-0.7

0.1

0.8

-1.6

0.0

0.3

Domestic Demand

2.5

3.2

0.8

-0.7

-1.0

0.7

-0.4

Exports

9.7

3.3

1.0

-1.1

-0.2

-0.9

-0.8

Imports

8.9

6.6

2.1

-1.8

-2.2

0.1

-1.3

Total

3.2

1.8

0.4

-0.4

0.0

0.1

-0.1

Contribution to growth (in percentage points) Consumption

1.4

2.3

0.9

0.1

-0.7

-1.1

-1.4

-Private Consumption

0.8

1.9

0.9

0.1

-0.1

-0.4

-1.1

-Public Consumption

0.7

0.3

0.0

0.0

-0.5

-0.7

-0.4

Investment

0.0

0.0

0.4

-0.2

0.0

0.1

0.0

-Construction

-0.3

-0.2

-0.2

-0.5

-0.4

-0.2

-0.1

-Machinery and Equipment

0.2

0.3

0.6

0.3

0.4

0.3

0.1

-Other

0.1

0.0

-0.1

0.0

0.0

0.0

0.0

Change in stocks

0.9

0.7

1.7

1.3

0.3

0.7

-0.3

Domestic Demand

2.3

3.0

3.0

1.1

-0.3

-0.4

-1.7

Net exports

0.9

-1.2

-1.8

-0.9

0.3

0.0

0.9

Source: Federal Statistical Office

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