Die wirtschaftliche Lage in Deutschland im Dezember 2023¹

• After a fall in GDP in the third quarter, current economic indicators suggest that economic growth will continue to be weak throughout the fourth quarter. The previously positive investment trend in particular is likely to weaken perceptibly, whilst consumer spending is likely to stabilise as real wages are rising once again. The latest indicators of sentiment among companies and households suggest a slightly more positive outlook for the coming year.
• Output in the manufacturing sector fell by 0.4% between September and October, continuing the downward trend observed since the summer. In October, industrial output decreased by 0.5% and construction sector output by 2.2%. The energy sector, however, registered an impressive increase of 7.1% after decreases in the previous two months. Whilst the latest figures for new orders do not yet reflect a permanent reversal of this trend, current indicators of sentiment suggest a bottoming-out, making a stabilisation of industrial activity likely.
• Real retail sales excluding motor vehicles rose by 1.1% in October compared with the previous month, after a stagnation in September (-0.1%). The number of new registrations of passenger cars by private owners decreased by 3.2% in November, following a strong rise (of +9.1%) in October. Most recently, the leading indicators for consumer spending have suggested a rather restrained development: however, rising wages and falling inflation rates are likely to lead to a stabilisation.
• In November, the rate of inflation was 3.2%. That is the lowest level since June 2021. Year-on-year, food prices again rose at a disproportionately high rate (+5.5%) in November, although inflation continued to ease here too (October: +6.1%). Energy prices compared to the same month in the preceding year fell for the second time since January 2021 (-4.5%). Last year’s measures to curb prices are likely to lead to a temporary rise in inflation rates in the coming months, as the result of changes in the reference figure.
• The weak development of the labour market continued in November. Seasonally adjusted unemployment increased by 22,000 people. Seasonally adjusted employment rose slightly in October (+15,000). Early indicators currently do not suggest a change in this labour market trend. The labour market is not expected to see a sustained improvement unless and until the economy picks up speed next year.
• According to the final figures, the number of companies filing for insolvency in September remained virtually unchanged compared to the previous month and stands at 1,557 (+0.1%). Since June/July, a stabilisation of the number of insolvencies has been observed. However, they are still up by 26.7% compared to the preceding year. The number of corporate insolvencies remains slightly (-4.5%) below the pre-COVID mean value (2016-2019). The number of employees affected by an insolvency remains at a high level too: in September, it was around 91% above the previous year’s figure and 67% above the September mean value of the pre-COVID years (2016-2019). According to the Halle Institute for Economic Research’s Bankruptcy Update, the number of insolvencies decreased by 5.8% in November 2023 compared to the previous month (+20.9% compared to November 2022). The preliminary figure for regular insolvencies filed also slightly declined in November (-1.8%, +18.8% year-on-year).

WEAK END TO 2023

Throughout 2023, the German economy was marked by economic stagnation paired with high – albeit falling – inflation rates. The reason why the development was weaker than expected at the beginning of the year were the after-effects of the massive loss of purchasing power due to the energy price crisis, which weakened consumer spending. To this was added the considerably slower growth of the global economy and the dampening effect from geopolitical tensions and crises.

Gross domestic product (GDP) fell by 0.1% in the third quarter after price, seasonal and calendar adjustments, and, given the current monthly indicators such as new orders and industrial output, another slight decrease of GDP is likely to be observed in the final quarter as well. Investment activity – which has continued to develop favourably up to this point – is likely to weaken due to a weakening in new orders, less favourable financing conditions and the special development in the third quarter resulting from the expiration of the ‘environmental premium’. At the same time, the latest consumer-related indicators such as sales in the retail and hospitality sectors suggest a stabilisation of consumer spending, albeit at a low level.

The latest indicators of market sentiment such as the ifo Business Climate Index, the ZEW Indicator of Economic Sentiment and the purchasing managers index (EMI) for Germany’s industrial sector suggest that entrepreneurs are taking a slightly more optimistic outlook for the future at the end of the year. With inflation rates falling and real incomes rising, private households, too, seem to be becoming slightly more optimistic. The GfK Consumer Climate Survey registered an increase in the propensity to buy and a decrease in the propensity to save, albeit from a very low level. However, given the period of global economic weakness, continuing geopolitical crises and potential increases in raw materials prices resulting from these, the risks to the expected economic recovery remain high. The fiscal implications and uncertainty regarding the organisation of public budgets resulting from the Federal Constitutional Court’s judgement of 15 November 2023 on the Second Supplementary Budget Act are another burden on economic growth prospects.

THE GERMAN ECONOMY REMAINS FLAT

The period of weak global industrial activity is continuing. In light of the less favourable financing conditions and weak global demand, industrial output expanded only slightly (+0.2%) in September compared to August. In November, the global purchasing manager indexes remained below the threshold for growth in many important German sales markets (such as the eurozone and Eastern Europe). The S&P Global indicator of sentiment increased slightly in November and now stands at 50.4 points – only slightly above the threshold for growth. Recently, sentiment has brightened in the manufacturing sector (rising from 48.8 to 49.3 points) and in the services sector (rising from 50.4 to 50.6 points). However, the prospects for global economic growth prospects remain subdued overall.

Global trade picked up slightly between August and September, rising by +0.7%, but the RWI/ISL Container Throughput Index fell again somewhat in October (seasonally adjusted), dropping from 125.5 to 125.0 points. Whilst the container throughput in Chinese ports supported the development, the Nordrange Index for European ports decreased somewhat. In addition to this, the Kiel Trade Indicator for November currently points to another slowdown in global trade of -0.9%. This means that German foreign trade is not likely to see any stimulus from the global economy in the near future.

International organisations expect the recovery to remain restrained for some time to come. According to the OECD’s November economic outlook, real global trade is likely to grow by only +1.1% in 2023 and by +2.7% in 2024. Below average expansion rates are also expected for global GDP (2023: +2.9% 2024: +2.7%), not least due to a slowdown in growth in the U.S. (2023: +2.4%, 2024: +1.5%) and in China (2023: +5.2%, 2024: +4.7%). After a weak year 2023 (+0.6%), and with inflation rates continuing to fall, real incomes rising and industrial activity stabilising, the OECD expects industrial activity in the eurozone to pick up again slightly in 2024 (+0.9%).

EXPORT EXPECTATIONS BRIGHTEN SOMEWHAT BUT GLOBAL TRADE CONTINUES TO BE WEAK

Nominal exports of goods and services increased by +0.8% between September and October after adjustment for seasonal factors and calendar irregularities, following a virtual stagnation in September (-0.2%). At the beginning of the fourth quarter, they were thus +1.0% above the third quarter average. Nominal imports of goods and services decreased by -0.4% compared to the previous month and, in October, were slightly below the third quarter (by -0.4%).

Foreign trade prices are still being affected by the high price rises for energy imports last year, particularly for natural gas as a result of the war in Ukraine. Whilst import prices fell sharply by -13.0% year-on-year in October, they increased somewhat compared to the previous month after adjustment for seasonal variations (+0.4%). Export prices stagnated between September and October, so that the terms of trade deteriorated, down -0.4% from the preceding month. In real terms, the decline in imports is therefore likely to have been rather more pronounced.

As a result of falling imports and rising exports, the monthly trade surplus increased from €15.4 billion in September to €17.3 billion in October.

There are still hardly any positive signals from the leading indicators about the future development of exports. Even though the ifo export expectations have continued to see signs of improvement in November (up from -6.3 to -3.8 points), the balance has been negative since June. This means that there are more companies that expect export business to worsen than to improve. The shipping movement data in the Kiel Trade Indicator for November suggests that there could be a restrained increase in real German exports (+0.7%). Foreign trade is likely to remain weak at the end of the year. The indicators currently do not point to a tangible rebound of foreign trade in the coming months.

DOWNWARD TREND IN INDUSTRIAL OUTPUT CONTINUING

Output in the manufacturing sector fell by 0.4% between September and October, continuing the downward trend observed since the spring. In October, industrial output decreased by 0.5% and construction sector output by 2.2%. The energy sector, however, registered an impressive increase of 7.1% after decreases in the previous two months.

The individual branches within the industrial sector saw differing developments in October: Whilst the important automotive and automotive parts sector announced a 0.7% increase in output, decreases were registered by the similarly important sectors of mechanical engineering (-6.3%) and electrical equipment (-3.1%). Output also fell in energy-intensive sectors such as chemical products (-2.0%), metal products (-1.2%) and glass, glassware and ceramics (-0.6%). This resulted in a decrease of 1.4% in October for all energy-intensive sectors combined. In contrast to this, pharmaceuticals (+0.9%), data processing equipment, and electrical and optical products (+1.2%) recorded growth.

The decline in industrial production in October is likely to have been caused to some extent by the holidays and days taken off to bridge the gap between the holidays and the weekend, but even without these special factors, economic growth continues to be weak. The two-month comparison, which is a more meaningful indicator, showed a decline of 1.6%. Whilst the latest figures for new orders do not yet reflect a permanent reversal of this trend, current indicators of sentiment suggest a bottoming-out, making a stabilisation of industrial activity likely.

CONSUMER SPENDING IMPROVING SLIGHTLY

Real retail sales excluding motor vehicles rose by 1.1% compared to the preceding month, after four months of consecutive downward development. Compared with the same month a year ago, the retail sector experienced a real sales decline of 0.1% in October, which was especially due to the high price increases. Trade in foodstuffs fell by 1.3% in real terms in October compared with September (-1.5% in year-on-year terms). Mainly due to the sharp rise in food prices, this segment of the retail sector has mostly recorded year-on-year sales declines for more than two years, though these have partly flattened out recently. Food continues to be a strong driver of consumer prices, even though food price inflation has continued to slow compared to the same month a year ago (November: +5.5%, October: +6.1%). Online and mail-order trade rose by +2.9% in September (-1.0% down against the same month of the preceding year).

The number of new registrations of passenger cars by private owners decreased by 3.2% in November, following a +9.1% increase in the preceding month. Total new registrations of passenger cars saw a somewhat smaller decline: -1.6% in November followed an increase of 1.1% in October. One reason for this volatile development was probably that people brought forward their purchases due to the expiration of the ‘environmental premium’ for commercial registrations at the end of August. As a result, new registrations of passenger cars by companies and self-employed individuals have fallen since September. In November, they decreased for the third consecutive month (September: -27.2%, October: -2.8%, November: -0.7%).

Most recently, the leading indicators for the future development of consumer spending have suggested a rather restrained development. According to the GfK forecast, the consumer climate will improve marginally in December (+0.5 points), after slight falls in September, October and November. Thanks to a palpable recovery phase in the winter semester of 2022/2023, the consumer climate is still much better than it was in November 2022. The ifo business expectations in the retail sector remained unchanged in November and continue to be negative. Surveys suggest that the retail trade sector expects weak Christmas sales. However, the assessment of the current situation has improved. Overall, the most recent leading indicators suggest that consumer spending is likely to remain restrained. However, the combination of rising wages and falling inflation rates means that consumer spending is likely to stabilise in the coming months.

INFLATION CONTINUING TO FALL

The rate of inflation, i.e. the rise in the price level within the space of a year, stood at 3.2% in November. That is the lowest figure since June 2021 and is largely due to a base effect caused by very high energy prices in 2022. The corresponding figure for October had stood at 3.8%. The core rate (excluding energy and food) was 3.8% in November (October: +4.3%), and was again higher than the inflation rate. Year-on-year, food prices again rose at a disproportionately high rate (+5.5%) in November, although inflation continued to ease here too (October: +6.1%). Energy prices compared to the preceding year fell for the second time since January 2021 (-4.5%, October: -3.2%). This is largely due to a base effect caused by the high level of energy prices in 2022. Inflation in the services sector saw another slight decrease and stood at +3.4% (October: +3.9%).

On the spot markets, prices for natural gas have had a tendency to rise again since mid-July. Currently, however, the TTF Base Load stands at around €43/MWh, 68% down on the level of November 2022. This corresponds to a decrease of approx. 15% over the preceding month. The market expects that natural gas prices will continue to stand at approx. €50/MWh in the coming quarters. The futures prices are not likely to settle back at pre-crisis levels until 2027.

The upstream stages of the economy are also seeing less price pressure. Producer prices fell by 11.0% in October 2023 compared to the preceding month. In September, they had fallen by 14.7% – the sharpest drop in producer prices since statistics began in 1949. Compared with the preceding month’s level, producer prices fell by 0.1% in October. Import prices fell sharply by 13.0% year-on-year in October (+0.3% month-on-month). Wholesale selling prices dropped by 3.6% year-on-year in November. The current drop in this price category too is mainly due to a base effect resulting from the high price increases in 2022. A slight decrease was registered compared with the preceding month (-0.2%).

Last year’s measures to curb prices, especially the government’s decision to cover the advance payment for December for private households and the energy price brakes of 2023, are likely to lead to a temporary rise in inflation rates in the coming months, as the result of changes in the reference figure. According to the ifo surveys, the proportion of firms planning to raise prices has recently increased slightly again. However, this increase mainly concerns business-related service providers and wholesale trade. In consumer-related sectors, price expectations continued to fall. Energy prices are at a moderate level. Monetary tightening is continuing to have a dampening effect on the demand side.

WEAK DEVELOPMENT OF THE LABOUR MARKET CONTINUING

The current weakness of the economy is also mirrored by the labour market. According to the unadjusted figures, unemployment remained virtually unchanged compared to the preceding month. In seasonally adjusted terms, this corresponds to a rise of 22,000 persons. Employment increased somewhat between September and October (+15,000 persons in seasonally adjusted terms). The number of jobs subject to social-security contribution remained largely unchanged between August and September (+5,000 in seasonally-adjusted terms). Even though the number of people in short-time work rose slightly in September, the figures for Novembersaw a slight decline again. The leading indicators suggest that the pace of employment growth will continue to be weak. According to the ifo employment barometer, companies’ readiness to recruit has slightly decreased; companies are reluctant to hire new staff. For the industrial sector, however, the barometer rose again, after seven consecutive months of decline. The IAB Labour Market Barometer for unemployment gives a negative outlook. The outlook for employment also worsened slightly but was still positive. According to the IAB, the number of vacancies remained high in the third quarter, at 1.7 million. The period of economic weakness is likely to continue throughout the winter, with an improvement to be expected at the earliest in spring, when the economy is expected to pick up speed again.

RISE IN CORPORATE INSOLVENCIES HALTED FOR NOW

According to the final figures, the number of companies filing for insolvency in September remained virtually unchanged compared to the previous month and stands at 1,557 (+0.1%). This corresponds to a 26.7% increase over the same month last year after the year-on-year values for June, July and August had still all been above 35%. The number of corporate insolvencies remains slightly (-4.4%) below the pre-COVID mean value (2016-2019). In the first nine months of 2023, there were 24.7% more corporate insolvency proceedings than in the same period of 2022. Since June/July, a stabilisation – but not a clear easing of the situation – can be observed. The trend of rising numbers of insolvencies witnessed since the middle of 2022 seems to have been halted for now. The number of employees affected by an insolvency remains at a high level: in September, it was around 91% above the figure for the same month last year and 67% above the September mean value of the pre-COVID years (2016-2019). The expected claims of the creditors resulting from the corporate insolvencies filed increased by around 120% year-on-year and by around 39% compared with the 2016-2019 September mean value. The figures show that large companies are currently tending to suffer more from insolvencies.

According to the Halle Institute for Economic Research’s Bankruptcy Update, the number of corporate insolvencies decreased by 5.8% between October and November. This marked a 20.9% increase year-on-year (October: +43.6%). According to the Halle Institute for Economic Research, the decrease in the number of insolvencies is a surprise and is mainly due to the fact that an extraordinary low share of the preliminary court decisions on insolvencies in the last few months resulted in actual insolvencies. However, the Institute points out that this does not necessarily mean the end of rising insolvency numbers. The preliminary figures for regular insolvencies filed – another leading indicator – also fell in November (by -1.8%). The expected rise in corporate insolvencies at the end of the year, which had been implied by the October figures, has thus not yet been confirmed.

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¹ This report is based on data that were available as of 13 December 2023. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.