Quarterly Report Germany Q1-2025 by Bundesverband der Deutschen Industrie e.V.

German economy

Economic output contracts for second consecutive year

The German economy ended 2024 with a decrease in economic output. Gross domestic product in the fourth quarter 2024 was 0.2 percent down on the previous quarter following price, calendar and seasonal adjustment, according to the German Federal Statistical Office. Year on year, real economic output was 0.4 percent lower on account of the fewer number of working days in the fourth quarter this year (down 0.2 percent following seasonal adjustment). In late February, the Federal Statistical Office confirmed GDP growth at minus 0.2 percent for 2024 overall, as initially calculated in late January. This constitutes the second consecutive year of negative GDP growth for the German economy.

In the fourth quarter 2024, Germany’s economic output was generated by a workforce of 46.1 employees. That corresponds to approximately the same number as in the previous year (down 8,000 people). The total number of hours worked by all employees rose by 0.7 percent as each employee worked more hours on average.

Growth in real GDP in percent

Source: Federal Statistical Office

On the income side of GDP, gross value added in the fourth quarter 2024 fell 1.6 percent in real terms compared to the same quarter in 2023. A major factor bringing GDP down was the steep drop in the gross value added of the construction industry of 3.9 percent and of the manufacturing sector of 3.5 percent. Within the service sector, financial and insurance service providers and corporate service providers recorded the sharpest decreases in gross value added of 2.5 percent and 1.1 percent respectively. Gross value added by the heavyweight sector of retail, transport and hospitality turned down 0.2 percent in the fourth quarter after remaining upwards year on year in the first three quarters of the year. Property service providers also saw their gross value added turn down for the first time

that year, with a fall of 0.3 percent. Among the few industries that managed to increase activity in the final quarter of 2024, public service providers, education and healthcare registered the largest increase (up 2.5 percent) followed by information and communication services (up 1.9 percent). Other service providers expanded gross value added by a slim 0.3 percent.

On the expenditure side of GDP, the consumption expenditure of private households increased 0.3 percent in the fourth quarter compared to the fourth quarter 2023. That was still 0.5 percent less than before the outbreak of the pandemic. In the fourth quarter 2024, consumers spent much less on hotel and restaurant services (down 3.6 percent). Expenditure on clothing and shoes was also down by a substantial 2.7 percent. Consumers also spent one percent less on food, beverages and tobacco and a marginal 0.3 percent less on leisure, entertainment and culture. The largest increase in spending was on healthcare, with consumers spending 3.9 percent more than one year ago and all of 7.6 percent more than in the fourth quarter 2019. Consumers also spent two percent more on household goods and furnishings than one year ago. Expenditure on housing, energy and water, transport and communication was up by one percent in both cases. State consumption expenditure rose four percent in the final quarter of 2024, after already recording similar growth rates in the previous two quarters. Following seasonal and calendar adjustment, private consumption tread water at its prepandemic level in the fourth quarter 2024, while public consumption was thirteen percent higher than in late 2019.

Gross fixed capital formation accelerated its downward trend further at the end of the year, falling 2.7 percent year on year in the fourth quarter. As in the two previous quarters, the major factor pulling performance down was the steep drop in investment in plant and equipment. In the fourth quarter, investment here was down by 6.4 percent following a drop of six percent in the third quarter. In construction, investment continued its downward trend of just under three years, but with lower downward momentum. In the first quarter of the year, investment here was down by more than five percent. In the fourth quarter, the downward pace had slowed to minus 1.9 percent. The downward trend did not just affect residential construction, which dropped 4.1 percent, but also investment in commercial property (down 0.1 percent). Investment was only upward in public construction, rising 4.7 percent on the back of increased activity in road and rail construction. Investment in other assets (including software and patents) was 2.4 percent higher year on year. Finally, strong changes in inventories at the end of the year resulted in an upward trend here.

Exports dropped 3.2 percent in real terms year on year. While the export of services rose for the third consecutive quarter, expanding 3.4 percent, the export of goods dropped by a hefty 5.2 percent in real terms. Exports of machinery, motor vehicles and vehicle components and electrical equipment plunged particularly. Imports expanded 2.8 percent in the same period, fuelled primarily by a 6.5 percent increase in imported services. Growth in imported telecommunication and information services and corporate services was especially strong. The import of goods, on the other hand, only rose by a slim 1.2 percent. With exports dropping while imports rose, net exports pulled growth down by a substantial 2.5 percentage points.

Trade in goods negative at end of 2024

Exports of goods were 8.57 billion euros or 2.2 percent lower in the fourth quarter 2024 year on year (seasonally adjusted figures are not available for all states). In absolute terms, exports to China recorded the steepest drop, going down 3.82 billion euros or 16.1 percent, followed by exports to France, which dropped 2.22 billion euros or 7.5 percent. Exports to Italy and the United Kingdom

dropped by around 1.2 billion euros or six percent in each case. While exports to Mexico plunged down by a good fifth, goods exports to the United States were only 676 million euros or 1.7 percent lower. On account of the EU sanctions against Russia, exports to this country were 3.2 percent less, down to 1.83 billion euros. Compared to the last quarter before the outbreak of the war, exports were 75 percent lower. Trade with neighbour country Poland picked up, with exports increasing 923 million euros or 4.1 percent. Exports to Japan (up 889 million euros) and India (up 796 million euros) were up by around one fifth in both cases.

Sources: Federal Statistical Office, own calculations

Despite falling exports, Germany imported slightly more goods over the same time period, up 1.48 billion euros or 0.5 percent. The increase in goods imports was primarily driven by a steep rise in goods imported from Asia. Imports from China increased the most, rising 2.67 billion euros or 6.8 percent, followed by imports from Bangladesh. Imports from this country increased by a good third, up 561 million euros. Imports from Singapore also increased by more than one half compared to one year ago. Imports from Germany’s European trade partners the Czech Republic (up 3.7 percent), the

United Kingdom (up 6.2 percent) and Switzerland (up 3.8 percent), expanded by around half a billion euros in each case. Going the other way, goods imports decreased tangibly from the Netherlands (down 2.05 billion euros or 8.3 percent), Belgium (down 739 million euros or 5.9 percent) and Italy (down 470 million euros or 2.7 percent). Imports from Russia were down by a further 30 percent year on year and down 96 percent compared to the fourth quarter 2021. In trade with partners outside of Europe, imports from the United States were down by around two billion or 8.5 percent and imports from South Korea were down by 521 million euros or 16 percent.

Weak economic performance gradually affecting labour market

According to preliminary data from the Federal Statistical Office, the number of people in employment within the country fell by 11,000 in January 2025 compared to the previous month after seasonal adjustment, following an increase of 2,000 in December. Year on year, the number of people in employment was down by 42,000 or 0.1 percent to 45.8 million.

Difference in the number of workers making social security contributions from the same month last year (right axis) *seasonally adjusted

Despite falling employment levels, the number of people in employment subject to social security contributions continued its upward path. According to Federal Employment Agency projections, a total of 35 million people were in employment subject to social security contributions in December 2024 (latest figure available). After seasonal adjustment, that is 12,000 more people than in November 2024 and 80,000 more than one year ago. The number of people in full-time employment subject to social security contributions dropped 132,000 or 0.5 percent, while the number of people in part-time employment subject to social security contributions increased by 212,000 or two percent over the same period.

The other forms of employment experienced a diverse development. The number of self-employed people including contributing family members dropped by 86,000 or 2.2 percent down to 3.75 million in the fourth quarter 2024 year on year. The number of people exclusively in marginal employment dropped by a slight 2,000 following seasonal adjustment, according to preliminary Federal Employment

German labour market*

Agency projections. At 4.14 million, this group of workers was 52,000 or 1.2 percent smaller in December 2024 than one year ago. The number of unemployed people in February 2025 at 2.99 million was 175,400 or 6.2 percent higher than in February last year. The unemployment rate in February 2025 was therefore 6.2 percent as calculated by the Federal Employment Agency or 3.2 percent according to the ILO definition.

Large orders drive hefty increase in incoming orders at end of 2024

After a weak performance in October and November, the industrial sector recorded a substantial rise in incoming orders in the final month of the year. According to preliminary figures, incoming orders increased 6.9 percent over the previous month in December 2024. The strong increase was primarily due to large growth in other transport equipment (aircraft, ships, trains, military vehicles). Incoming orders in this sector were 50 percent higher than in the previous month due to several large orders. Excluding large orders, incoming orders were 2.2 percent higher than in November 2024. Domestic orders increased 14.6 percent, clearly outpacing orders from abroad which only rose 1.4 percent. Among foreign orders, orders from the euro area performed particularly well, increasing 6.2 percent. Demand from third countries tailed off slightly, going down 1.5 percent.

New orders, manufacturing

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

The December figures rounded off the figures for the fourth quarter 2024, showing the following trends. Compared to the previous quarter, incoming orders slipped down 0.1 percent in the fourth quarter following seasonal and calendar adjustment. Compared to the fourth quarter 2023, incoming orders were down by 0.9 percent. Compared to the last quarter before the outbreak of the Covid pandemic, orders were down by 2.7 percent. Looking at the origin of orders in the fourth quarter 2024, orders from at home were 0.9 percent higher than in the third quarter 2024. Compared to the fourth quarter of the previous year, orders were 0.9 percent lower. Orders from abroad overall were 0.7 percent lower than in the previous quarter. Year on year, incoming orders from abroad were 0.9 percent lower. While

demand from the euro area was 9.9 percent lower year on year, orders from non-euro countries were 5.7 percent higher than one year ago.

Among the main groups of industrial goods, producers of intermediates received 2.7 percent less orders year on year. While orders from at home were down by 8.7 percent, orders from abroad were up by 3.4 percent year on year. Capital goods producers collected 0.7 percent more orders in the fourth quarter than one year ago. Demand from abroad was weak, going down by 2.4 percent. Domestic orders, on the other hand, surged up 20.8 percent. Consumer goods producers suffered from low domestic demand in the final quarter of the year (down 4.7 percent). Orders from abroad were also downward bringing the order volume down by 4.1 percent overall.

Order backlogs dwindling tangibly

Weak demand is also affecting order backlogs. According to ifo Institute figures, the reach of orders in hand in the manufacturing sector was down to 3.6 production months at the start of the first quarter 2025. This is only 0.1 production months higher than the average over the last ten years. Among the main industrial sectors, the reach of orders in hand among producers of intermediates was 2.9 production months, which is slightly lower than on average over the last ten years. Among capital goods producers, the order backlog did not drop further at the turn of the year. The backlog of orders here of five production months was 0.5 production months higher than the long-term average. Among consumer goods producers, the backlog of orders plunged further, dropping from 2.9 down to 1.8 production months. For the first time since 2021, order books here were thinner than on average over the last ten years.

According to the figures available from the Federal Statistical Office for December 2024, the order backlog in the manufacturing sector in real terms was 0.5 percent smaller than in the previous month. This was the 23rd reduction in a row. While unfinished orders from at home were 2.4 percent higher than in December 2023, the backlog of foreign orders experienced another tangible drop of 2.2 percent.

Industrial production down for the third consecutive year

In December 2024, industrial production was 3.3 percent lower than in the previous month following seasonal and calendar adjustment, which is its lowest level since May 2020. While construction activity stagnated in December, production in the energy industry was 1.1 percent higher than in the previous month. All in all, the output of the production sector (manufacturing, energy and construction) was 2.4 percent lower than in November 2024 and 3.1 percent lower than in November 2023.

The December figures complete the figures for the fourth quarter 2024. Following seasonal and calendar adjustment, industrial production was down on the previous quarter by 1.3 percent. Compared to the fourth quarter 2023, industrial production was 3.8 percent lower. Compared to the last quarter before the outbreak of the Covid pandemic, industrial activity was all of 10.7 percent lower in the fourth quarter 2024.

Among the main industrial groups, production in the final quarter of 2024 was down for the third consecutive quarter both quarter on quarter and year on year. The producers of intermediates produced 0.8 percent less than in the third quarter 2024 following seasonal and calendar adjustment and 3.5 percent less than in the fourth quarter 2023. Capital goods producers produced 1.6 percent

Output in the goods-producing industry

year on year change in percent 2023 2024 2024 year Q2 Q3 Q4 original value calendar adjusted

year on year change in percent 2024 Q2 Q3 Q4 Oct Nov Dec seasonally and calendar adjusted

kalenderbereinigt

less than in the previous quarter and five percent less than one year ago. The producers of consumer goods produced 0.9 percent less than in the third quarter 2024 with a similar-sized drop of one percent year on year.

Production, manufacturing

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 year (q-o-q), in percent

Source: Federal Statistical Office

Among the individual industries, the fourth quarter 2024 performance was grim compared to one year ago. Only other transport equipment managed a tangible increase in production of 7.5 percent. Food, beverages and tobacco increased production by a minimal 0.3 percent. The metal industry also saw its output increase by a slight 0.8 percent as did producers of non-metallic minerals (up 2.6 percent). Going the other way, hefty drops in production were registered by vehicle production (down 8.2 percent), machinery manufacturing (down 7.3 percent) and the electro industry (down 7.1 percent). The chemical industry (down 1.3 percent) and pharmaceuticals (down 2.8 percent) proved unable to continue their upward trend in the fourth quarter of the year, while textiles slumped down a further 4.9 percent continuing the downtrend it has followed since the middle of 2022.

The slump in industrial production is continuing even if the downward trend in incoming orders appears to be bottoming out. Sentiment indicators such as the ifo barometer for manufacturing and the purchasing managers’ index also seem to have terminated their steep plunge. However, industrial capacity utilisation decreased further at the start of 2025, pointing towards further downward production. In short, the industrial recession has not yet come to an end.

Capacity utilisation rates keep on falling

At the start of 2025, industrial capacity utilisation dropped further from its already low level. According to figures from the ifo Institute, the utilisation rate of production capacities in the manufacturing sector was at 76.5 percent at the beginning of the first quarter of the year. That is 4.4 percentage points lower than one year ago. At the same time, the quarterly capacity utilisation rate was 7.2 percentage points lower than on average over the last ten years. Capacity utilisation in the manufacturing sector excluding food was down a considerable 4.5 percentage points compared to one year ago. Compared to the average over the last ten years, capacity utilisation was down by 7.5 percentage points.

Among the individual industries, vehicle production was one of the few industries to experience a tangible increase in capacity utilisation, with an increase of 4.2 percentage points compared to the previous quarter. At 80.2 percent, capacity utilisation here was still just under four percentage points less than one year ago and more than five percentage points lower than on average over the last ten years. Capacity utilisation among producers of metal products rose slightly, according to the latest figures (up 0.4 percentage points). Year on year, capacity utilisation here was just under five percent lower than one year ago and as much as eight percent lower than the long-term average. Among producers of chemical products and data processing equipment, capacity utilisation turned up slightly according to the latest figures although it is still well below the long-term average, by 7.8 and 8.6 percentage points respectively. The development in machinery manufacturing was precarious, with capacity utilisation dropping further at the start of the year. Standing at 78 percent, it is almost eight percentage points lower than the long-term average. Among the producers of optical and electronic equipment, capacity utilisation was more than 13 percentage points lower. In the pharmaceutical industry, the latest figures also show a clear decrease in capacity utilisation although it is only 5.4 percentage points lower than the long-term average. Producers of food, beverages and tobacco also decreased their capacity utilisation down to three percentage points lower than on average over the last ten years.

Manufacturing

revenue

remains weak at year end

Manufacturing revenue following price adjustment recorded another slight drop of 0.2 percent in the fourth quarter 2024 compared to the previous quarter. This was due above all to weak domestic revenue, which was 0.5 percent lower than in the previous quarter. Revenue from abroad stagnated compared to the third quarter 2024. In 2024 overall, revenue dropped by 4.3 percent in real terms. Revenue from at home dropped 5.2 percent, a slightly more pronounced drop than revenue from abroad which only fell 3.4 percent.

In nominal terms, manufacturing revenue in the fourth quarter 2024 was down year on year for the sixth quarter in a row. With a drop of 2.5 percent, the downward pace has continued to slack off though. The steepest drop in revenue, of 6.5 percent, was registered by vehicle producers. The electro industry also recorded an unusually large drop in revenue of three percent. Machinery manufacturers saw revenue drop 2.1 percent in the fourth quarter despite recording a rise in revenue in October. The drop in revenue among the energy-intensive industries at minus three percent was only slightly higher than in the manufacturing sector overall. The energy-intensive industries, chemicals and paper, only experienced moderate drops in revenue of 0.5 percent, as did the metal industry at minus 1.5 percent. The consumer-related industries of pharmaceuticals and food, beverages and tobacco increased revenue by somewhat more than three percent in both cases. A positive exception to the overall downward trend was other transport equipment which saw revenue increase by just under ten percent in nominal terms.

Manufacturing revenue* in Q4 2024

Other transport equipment production

*Change in percent, year on year

Source: Federal Statistical Office

Bad start for industry in 2025

On account of the overall performance in the course of 2024, the manufacturing sector has started out the new year with a negative carryover. This means that if industrial production stagnates at the level of 2024 this year, the annual result would be minus 2.1 percent. As in last year, almost all main industrial groups have started out 2025 with a negative carryover. Production was down the most over the year among producers of intermediates. The negative carryover is therefore the

highest for this sector at 2.3 percent. The downward course of production among capital and consumer goods producers over the last year was slightly flatter which means that the negative carryover is slightly lower at two and 1.9 percent respectively. Although the purchasing managers’ index for manufacturing rose markedly in January and February 2025, at 46.1 index points, it is still well below the threshold value of 50 above which it indicates expansion.

ifo business climate: sentiment at start of year mixed

Sentiment in German industry was mixed in February 2025. The ifo business climate index remained unchanged, after rising 0.5 index points in January. While companies rated their current business situation as somewhat deteriorated, their prospects for the next six months had brightened up. Among the individual sectors, sentiment among service providers clouded over the most. They were more pessimistic both about their current business and their prospects for the next six months. In wholesale and retail, the index recorded its strongest rise of three points. The current situation was rated as

Ifo Business-Cycle Clock

manufacturing*

*Balances, seasonally adjusted

Source: ifo Institut

improved for the second time in a row. Business prospects also improved clearly compared to the previous month but were still rated negatively by the majority of companies surveyed. Sentiment also improved slightly in mainstream construction. Construction companies surveyed were more negative about their current situation than at the start of the year but rated their prospects for the next six months as improved both compared to the previous month and compared to one year ago. In manufacturing, sentiment, already brighter in January, continued to improve in February. Although current business was rated as slightly worse than in January, prospects for the next six months improved considerably and were able to compensate for a large part of the drop in sentiment registered over the previous

three months. Incoming orders have also stabilised. Export prospects improved markedly in February following two consecutive drops previously. But they still have been rated negative by the majority of companies surveyed since April 2023.

Outlook

Economic growth in Germany has meandered around zero for three years now. Germany’s GDP following price, seasonal and calendar adjustment has not fallen for two consecutive quarters a single time since the second half of 2020, which would constitute a technical recession. However, it has now contracted two years in a row for the first time since the dotcom bubble burst more than 20 years ago because it has not yet recovered from the consequences of the Covid pandemic and the war-induced energy price shock.

There are many indications that the German economy will not yet recover this year. Industrial companies are bemoaning a shortage of incoming orders. Capacity utilisation rates have consequently languished below the long-term average for more than one and a half years now. Early indicators, such as the truck toll mileage index which give first indications on the development of industrial production, are still signalising continuing downward production. In the service sector, while some areas such as public service providers, education and healthcare, and information and communication, are pointing upwards, the heavyweight sectors of retail, transport and hospitality, and corporate service providers continued downwards at the turn of the year 2024/2025. Sentiment indicators such as the purchasing managers’ index and ifo business climate index have recovered from their mid-2024 lows but have been stagnating again lately. The prospects for German GDP in the first quarter 2025 are anything but rosy. In view of the negative carryover of minus 0.2 percent, a weak first quarter would push the annual growth rate for 2025 far into the negative for the time being.

In the current year, private consumption once again poses a problem for economic forecasts. Real wages rose steeply last year increasing disposable incomes. This year, wage increases in real terms will be curbed by the steep rise in social security contributions. In contrast to previous years, the number of people in employment has turned down. The growth in employment subject to social security contributions is also faltering. This does not bode well for a pick-up in private consumption, especially in view of the increase in reports of impending factory closures, relocation of production abroad and workforce cuts which are all increasing concerns regarding job security. This uncertainty is also reflected in the consumer climate index published by consumer research institute, GfK, which dropped for the third consecutive time in February. We expect consumer reticence to tail off in the second half of the year as consumers start to feel more positive again about the future. In conjunction with slight increases in real incomes, we regard an increase in private consumption of 0.2 percent in real terms as feasible. Together with public consumption expenditure, which is expected to increase by 1.5 percent in real terms according to the current annual economic report of the federal government, consumption expenditure would then increase by 0.6 percent.

Investment activity is likely to decrease further this year, as indicated by the low level of incoming orders and below long-term average capacity utilisation rates. The downward trend in investment in plant and equipment that has persisted since 2023 is set to carry on this year but with a lower downward momentum of one percent. Construction investment is expected to remain downward in 2025 as well. Negative factors will once again be residential construction, which will continue to be dogged by high building costs and the still relatively high mortgage interest rates. Incoming orders are not just down in terms of one and two-family homes but also in terms of building permits. Positive signs

are coming from civil engineering though, with further investments in the pipeline for transport infrastructure. Compared to the four previous years, construction investment in the current year should only fall 1.5 percent, half as much as last year. Investment in other assets (software, research and development) is not expected to rise as much as in the two preceding years of high growth and only grow by 2.5 percent. All in all, gross fixed capital formation is likely to be 0.6 percent lower than in the previous year.

BIP forecast for 2025:

Change in real economic output over the previous year in percent

Sources: Federal Government (January 2025; * Private households and private non-profit institutions serving households), Board of Experts (November 2024); ** including private households and private non-profit institutions,*** including military weapon systems, own calculations

German foreign trade is not expected to benefit from global economic recovery this year either. Trade with our main trade partners outside of the EU, China and the US, was slow in the last quarter of 2024. Furthermore, exports to the euro area were lower last year than in the previous year. One reason for this downturn is the loss in competitiveness on account of higher energy prices, particularly compared to the US. We therefore expect exports this year to be down by around 0.5 percent. Imports, on the other hand, are likely to increase by 0.5 percent, primarily on account of an increase in imported services. We consequently expect net exports to make a negative contribution to growth, bringing GDP in the current year down to 0.1 percent lower than in the previous year in real terms.

In view of the tariffs that the US is threatening to impose on imports from the European Union, net exports may pull growth down much more. Alone a reduction in German exports to the US of ten

percent would, if all other factors remained unchanged, bring growth in exports down by a good one percentage point. Even if falling exports also reduced the import of intermediates, they would still reduce GDP by between 0.3 and 0.5 percentage points.

The special fund proposed by the CDU/CSU and SPD parties to fund investment in infrastructure, climate protection and resilience as well as a possible reform of the debt brake to increase defence expenditure could inject growth momentum into the German economy. We will have to adjust our growth forecasts as soon as these factors have been clarified.

Imprint

Federation of German Industries e.V. (BDI)

Breite Straße 29

10178 Berlin

T: +49 30 2028-0 www.bdi.eu

German Lobbyregister Number R000534

Author Thomas Hüne

T: +49 30 2028-1592

t.huene@bdi.eu

Editorial / Graphics

Dr. Klaus Günter Deutsch

T: +49 30 2028-1591 k.deutsch@bdi.eu

Marta Gancarek

T: +49 30 2028-1588

m.gancarek@bdi.eu

This report is a translation based on „Quartalsbericht Deutschland I / 2025, Deutsche Wirtschaft im Jahr 2024 um 0,2 Prozent geschrumpft | Industrieproduktion 4,9 Prozent geringer als im Jahr 2023“, as of 10 March 2025

Basic data for national accounts

GDP (price, seasonally and calendar adjusted) Change over previous period in percent

Source: Federal Statistical Office

Quarterly Report Germany Q1-2025