Wachstumskurve mit Kugelschreiber symbolisiert die wirtschaftliche Lage.

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1. After weak economic growth at the end of 2023 with a decline in real GDP of 0.3 per cent, current leading indicators do not yet point to a recovery at the beginning of the year. The mood among consumers has recently deteriorated again. Negative factors such as weak foreign demand, strikes in public transport, high levels of sick leave among employees and geopolitical tensions resulting in supply chain delays could lead to a further delay in the expected economic recovery.

2. Output in the goods-producing sector fell by 1.6% in December as compared to the previous month, resulting in another noticeable dip at the end of the year. Output declined in both industry and the construction sector (-1.5% and -3.4% respectively). In contrast, the energy sector again registered a strong increase (+4.1%). New manufacturing orders increased markedly in December compared to the preceding month (+8.9%), following stagnation in November (0.0%) and a noticeable decrease in October (-3.8%). However, the two-month comparison shows that new orders in December were once again characterised by fluctuations in the number of large orders; excluding these, industrial orders fell by 2.2%.

3. After falling by 0.8% in November, real retail sales excluding motor vehicles declined further by -1.6% in December. Year-on-year, the retail sector experienced a real sales decline of 1.8% in December. The leading indicators for the future development of consumer spending currently present a mixed picture:

4. The inflation rate stood at 2.9% in January: that is the lowest level since June 2021. In December, the rate was noticeably higher (3.7%), which was largely due to a base effect caused by the immediate assistancein December 2022. This base effect no longer had an impact in January 2024, meaning that the previous year’s rate fell noticeably – even though the cap on energy prices expired and the carbon price increased.

5. The labour market developed a bit more favourably at the beginning of the year owing to mild weather. Seasonally adjusted unemployment fell by 2,000 people in January. The labour market saw an increase in employment in December and jobs subject to social insurance contributions also rose slightly in November. The leading indicators provided a mixed picture in January: while the number of reported jobs stagnated, the IAB labour market barometer improved and pointed to more favourable employment prospects.

6. The Halle Institute for Economic Research’s Bankruptcy Update for January 2024 showed an almost unchanged figure compared to the previous month. The institute assumes that the number of corporate insolvencies will continue to rise in the coming months.

STILL NO RECOVERY AT THE BEGINNING OF THE YEAR

After a weak last quarter of 2023, current leading indicators for the German economy do not yet suggest a significant economic recovery. According to the rapid release of the Federal Statistical Office, GDP fell by 0.3% in the fourth quarter, after adjustment for price, calendar and seasonal factors. In view of the declining inflation rate, rising incomes and the robust development on the labour market, spending by private households is likely to have provided a positive, albeit small, stimulus. As data from the Federal Statistical Office show, however, investment in plant, equipment and construction in particular was down significantly at the end of the year. In addition to higher material and financing costs in construction, higher energy prices and continued weak domestic and foreign demand are likely to have put a burden on industry. On top of this, sickness rates were unusually high, and this is also likely to have lowered the macroeconomic volume of work at the end of the year, hampering GDP growth in the fourth quarter.

According to the ifo Business Climate Index, the mood in companies deteriorated again in January, resulting in both a lower assessment of the current business situation and a gloomier outlook for the coming months. The mood among private households in Germany has also deteriorated again as of late as reflected in the GfK Consumer Climate Survey. Both economic and income expectations as well as the propensity to buy declined again in January following an increase in the previous month.

In addition to persistently high sickness rates, the strikes in local and long-distance public transport at the start of the year and ongoing geopolitical tensions, in particular delays in delivery times and increases in transport costs as a result of the Houthi attacks in the Red Sea, could also have a dampening effect on economic development. Taken together, these factors could lead to a further delay in the expected economic recovery.

MIXED SIGNALS FROM THE GLOBAL ECONOMY

After a period of stagnation, global industrial output increased by 0.3% in November. The previous key interest rate hikes by many central banks are still having an impact and the uncertainty caused by the ongoing geopolitical tensions is restraining economic development, which is largely reflected by the current global purchasing managers’ indices. For Germany’s key trading partners, especially in the eurozone, these remained below the growth threshold of 50 points at the start of the year. By contrast, sentiment in the USA and emerging markets improved somewhat in January. The sentiment indicator published by S&P Global also improved in January for the third time in a row (to 51.8 points): sentiment improved in both the manufacturing sector (from 49.0 to 50.0 points) and among service providers (from 51.6 to 52.3 points). Overall, global demand and stock levels, which increased significantly in the wake of the supply chain disruptions and weighed on the industrial economy, appear to be normalising again.

Following slight growth in the preceding three months, global trade fell by 1.4% in November month-on-month. The RWI/ISL Container Throughput Index currently indicates a further, albeit slight, decline for the month of December (from 125.4 to 125.1 points), which is partly due to the disruptions in the Red Sea. Whilst the container throughput in Chinese ports fell somewhat, the North Range Index for European ports even showed an increase. According to ship movement data from the Kiel Trade Indicator (KTI) for the month of January, shipments through the Red Sea continued to decline but the volume of goods shipped worldwide remained stable that month. Overall, the KTI indicates that global trade is likely to have remained weak at the start of the year.

International organisations continue to anticipate modest growth in global GDP for the current year. However, as demand and inventories normalise, global trade is likely to return to its historical trend and increase at similar rates as industrial output.

SIGNIFICANT SETBACK IN FOREIGN TRADE

Nominal exports of goods and services dropped significantly in December by -5.3% month-on-month in seasonally adjusted terms (November: +2.3%). In the quarterly comparison (Q4 vs. Q3), they were up 0.3% (2023: -1.3% year-on-year). The decline in goods exports in December was widespread: deliveries to both the EU and other countries were significantly lower than in November (China: -7.9%). At the same time, nominal imports of goods and services fell even more sharply than exports (-5.9%, November: +1.9%). They fell by 0.9% quarter-on-quarter and by as much as 6.1% year-on-year.
In December, foreign trade prices continued to be affected by falling prices for imports of raw materials and energy. After four months of growth, import prices fell by 1.1% in December (seasonally adjusted) compared to the preceding month, while export prices fell slightly (-0.1%). As a result, the terms of trade improved significantly by +1.0 % in December month-on-month for the first time since summer 2023. In real terms, the decline is therefore likely to have been weaker, particularly in imports.

After deteriorating in 2021 and 2022, the terms of trade improved in the past year (2023 vs. 2022: +8.7 %) which is also reflected in the trade balance. At €177.2 billion (seasonally adjusted), the cumulative balance for trade in goods and services in 2023 is around twice as high as in the previous year (€88.4 billion). The monthly trade surplus almost stagnated in December (€17.5bn, November: €17.6bn).

The leading indicators for foreign trade are currently sending out mixed signals and suggest a rather restrained development, partly because some goods require longer transport times as a result of the attacks in the Red Sea and changes to shipping routes. The ifo export expectations deteriorated further at the beginning of the year (from -7.1 points to -8.4) as a result of falling orders in key sectors such as the automotive industry, mechanical engineering and electrical engineering. The ship movement data of the Kiel Trade Indicator is currently signalling a further decline in real German exports for the month of January (-2.3% month-on-month).

The setback in German foreign trade points to continued weak demand from abroad. In view of the ongoing geopolitical crises and the economic slowdown in Germany’s key trading partners such as China and the USA, the outlook for the German export industry remains gloomy at the start of the year. According to current forecasts by international organisations, however, global trade is likely to expand at a similar rate to global GDP again in 2024, which suggests that German exports will gradually recover over the course of the year.

NOTICEABLE DECLINE IN PRODUCTION AT THE END OF THE YEAR

Output in the goods-producing sector fell by 1.6% in December as compared to the previous month. This was another significant setback in production at the end of the year. Output declined in both industry and the construction sector (-1.5% and -3.4% respectively). In contrast, the energy sector again registered a strong increase (+4.1%). Altogether, output in the fourth quarter of 2023 was down 1.8% on the third quarter’s figure.

Within industry, the individual sectors saw very differing developments in December. The automotive and automotive parts sector reported a sharp increase (+4.0%). Output also rose in metal production and processing (+0.8%) and the manufacture of pharmaceutical products (+4.7%). In contrast, the mechanical engineering sector (-1.6%) and the electrical equipment sector (-3.5%) reported falls. The manufacture of chemical products also saw a sharp decline at the end of the year (-7.6%). Output in the energy-intensive industries, including the manufacture of chemical products, glass, glassware and ceramics, and metal production and processing, registered a decline totalling 5.8% compared with the previous month.

New manufacturing orders increased markedly in December compared to the preceding month (+8.9%), following stagnation in November (0.0%) and a noticeable decrease in October (-3.8%). However, the two-month comparison shows that new orders in December were once again characterised by fluctuations in the volume of large orders; excluding these, order volumes fell by 2.2%. Overall, the increase in new orders in December is largely attributable to a strong rise in demand from the eurozone (+34.5%), but also in domestic orders (+9.4%). By contrast, orders from outside the eurozone decreased by 7.5%.

In December, the development in new orders differed between the various sectors of the manufacturing industry, with other vehicle manufacturing and electric equipment recording strong increases in order volume (110.9% and 38.7% respectively). New orders in other sectors such as metal products (+18.0%), pharmaceuticals (+8.2%) and metal production (+4.9%) also developed favourably. By contrast, the important motor vehicles and parts (-14.7%), mechanical engineering (-5.3%) and chemical products (-3.7%) sectors each saw a decline in new orders.

The appreciable rise in new orders in the manufacturing industry in December means that the downward trend seen in the preceding months, which had actually been caused to a significant degree by volatile large orders, has stopped. The more meaningful quarter-on-quarter comparison, however, shows that new orders remained at roughly the same level in Q4 as they had been in Q3 (+0.1%). Excluding large orders, the order volume fell by 2.6% between Q3 and Q4.

There is no sign of a turnaround as yet, although industrial orders, including large orders, rose sharply in December and the ifo business climate for the manufacturing industry has stabilised recently. It is expected that the economy will gradually pick up speed over the year as a domestic recovery sets in.

WEAK RETAIL FIGURES INDICATE NEGATIVE YEAR-END

After falling by 0.8% in November, real retail sales excluding motor vehicles declined further by 1.6% in December. Compared with the same month a year ago, the retail sector experienced a real sales decline of 1.8% in December (November: -1.6%). Trade in foodstuffs fell by 2.8% in real terms in December compared with November (-0.6% down against the same month of the preceding year).
Due to the sharp rise in food prices, this segment of the retail sector has mostly recorded year-on-year real sales declines for more than 2.5 years, though these have flattened out recently. Food prices continue to rise at an above-average rate, even though food price inflation has continued to slow compared to the same month a year ago (January: +3.8%; December: +4.6%). Online and mail-order trade shrank by 6.5% in December (-6.8% year-on-year).

New car registrations fell by 4.3% in January compared to the previous month, following an increase of 2.3% in December. This volatile development has likely been due to the fact that people brought forward their purchases due to the expiry of the ‘environmental premium’ for commercial registrations at the end of August 2023 and for private individuals on 18 December 2023. As a result, new car registrations by private owners fell significantly by 21.5% in January. In contrast, new car registrations by companies and self-employed persons increased by 6.3% in January.

The leading indicators for the future development of consumer spending currently present a mixed picture: according to the GfK forecast, the consumer climate will fall to -29.7 points in February. That is the lowest level since March 2023 (-30.6 points). At the same time, the propensity to save has recently increased again, rising to 14.0 points in January (up +6.7 points). The ifo retail business climate (incl. motor vehicles) fell by -3.8 points in January to its lowest level since November 2022 and remains in clearly negative territory (-26.6 points). Both the assessment of the current situation and business expectations have deteriorated.

Overall, the leading indicators for consumer spending are currently disappointing. In view of the negative sentiment, a turnaround in the retail sector is not yet in sight - despite individual positive signals at the end of last year. However, with rising wages and falling inflation rates, private consumption is likely to recover over the course of the year.

INFLATION RATE FALLS – DESPITE THE REMOVAL OF THE ENERGY PRICE CAP AND INCREASED CARBON PRICING

The rate of inflation,i.e. the rise in the price level within the space of a year, stood at 2.9% in January: that is the lowest level since June 2021. In December, the rate was noticeably higher (3.7%), which was largely due to a base effect caused by the immediate assistance in December 2022. This base effect no longer had an impact in January 2024, meaning that the previous year’s rate fell noticeably – even though the cap on gas and electricity prices expired and the carbon price for fossil fuels such as petrol/diesel, heating oil and natural gas increased.
As the base effect for energy vanished, the core rate (excluding energy and food) fell slightly again in January to 3.4% (Dec.: +3.5%) and was therefore – unlike in December – higher than the inflation rate again. Year-on-year, food prices again rose at a disproportionately high rate (+3.8%) in January, although the upward trend in prices also continued to slow (Dec.: +4.6 %). The absence of the base effect led to a further year-on-year drop in energy prices of 2.8% in January (Dec: +4.1%; Nov: -4.5%; Oct: -3.2%). In the services sector, inflation recently rose again slightly to +3.4 % (Dec.: +3.2 %).

The upstream stages of the economy are also seeing less price pressure. Producer prices fell by 8.6% in December 2023 compared to the preceding month. The corresponding figure for November had stood at -7.9%. The main reason for the year-on-year decline was the fall in energy prices. Compared with the preceding month’s level, producer prices fell by 1.2% in December. Import prices in December were 8.5% lower than in the same month a year ago (-1.1% month-on-month). Wholesale selling prices dropped by 2.6% year-on-year in December. There was also a decrease compared with the preceding month (-0.6%).

Prices for natural gas recently fell again on the spot markets. Currently, the TTF Base Load stands at around €27/MWh, roughly 50% down on the previous year’s level. This corresponds to a decrease of approx. 12% over the preceding month. The market expects that natural gas prices will hover around €30/MWh in the coming quarters.

Against this backdrop, inflation-reducing factors such as price declines at the upstream levels of the economy due to lower energy prices, the effects of monetary tightening by the ECB, appropriate wage settlements and normalisation of corporate profit margins are likely to persist during the rest of the year.

SLIGHT DROP IN SEASONALLY ADJUSTED UNEMPLOYMENT AT THE BEGINNING OF THE YEAR

As usual in January, registered unemployment in unadjusted figures increased by +169,000 compared to the previous month. Given the mild weather, this was rather below average; in seasonally adjusted terms, there was a slight decline (-2,000). Employment increased in December (+24,000 persons in seasonally adjusted terms). The number of jobs subject to social insurance contributions rose slightly in November, by +6,000 (seasonally adjusted). Short-time work remained more or less constant that month while short-time work notifications fell again. The leading indicators for the labour market gave mixed signals in January: according to ifo data, the number of reported vacancies and the willingness of companies to hire decreased slightly. In contrast, the IAB labour market barometer improved for the second time in a row, making it likely that the labour market will pick up again. The outlook for unemployment also improved slightly, but remains negative. Overall, there is still no sign of a turnaround on the labour market. A sustained recovery can only be expected in the wake of the anticipated economic upturn.

CORPORATE INSOLVENCIES RECENTLY ALMOST UNCHANGED

For January, the Leibniz Institute for Economic Research Halle counted 1,077 insolvencies of partnerships and corporations, about as many as in December (1,078). This number is 39 percent higher than in January last year. The institute assumes that the number of corporate insolvencies will continue to rise in the coming months. In addition to the difficult economic environment, the withdrawal of government assistance granted during the coronavirus pandemic, which led to comparatively very low insolvency figures, is also seen as a factor influencing this development.

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[1] This report is based on data that were available as of 13 February 2024. 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.