as of September 2024
as of September 2024
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- Economic Key Facts Germany
With a Gross Domestic Product (GDP) of 4.121 billion Euros in 2023, Germanyis the third-largest economy in the world after the United States and China, making it Europe's largest economy. It is the exports of motor vehicles and parts as well as chemical products that have strengthened Germany up to become the third-largest exporting nation in the world. With a 70% share of the GDP, the service sector contributes by far the largest share of the country's economy.
In addition, Germany is a top destination for investors, attracting an ever increasing number of companies to make greenfield investment there. As the largest economy in Europe, Germany entices its investors with its central-european location, but simultaneously puts them off with the current deterioration of Germany's situation as an economic destination.
Data retrieved: 6 September 2024
Economic Research Institutes Lower Their Forecasts for 2024
The leading economic research institutes have lowered their forecast for Germany's economic growth during the current year 2024. While, for example, the ifo Institute now expects Germany to achieve just stagnation, the Institute for the World Economy (IfW) anticipates us even seeing another recession. The reasons for this are increasingly structural in nature. For instance, the federal government's budget cuts are burdening the economy, while traditional core industries have been too slow to respond to changes. Additionally, issues such as decarbonization, digitalization, demographic change, the COVID-19 pandemic, the energy price shock, and China's evolving role in the global economy are putting greater pressure on established business models and forcing companies to adapt their production structures.
According to the ifo Institute, companies' business expectations also deteriorated further in August 2024 compared to the previous month (-0.2 points). However, the index, at 86.8 points, remains significantly higher than at the beginning of the year (January 2024: 83.7 points). In February 2022, i.e., before Russia's invasion of Ukraine, the index stood at 97.9 points.
The government spending ratio, which indicates the extent of state influence on an economy, is calculated as the total government expenditure as a percentage of national GDP. In 2023, according to the International Monetary Fund (IMF), this ratio in Germany was 48.3%, slightly below the EU average of 49.3%. In the UK (44.7%), the USA (38.1%), and China (33.9%), this ratio was significantly lower.
The tax burden, which represents the ratio of total taxes and social security contributions to GDP as an indicator of the tax load on an economy, was 42.1% in Germany in 2022, according to the European Commission and the OECD. This is slightly above the EU average of 41.1%. Here too, the ratio is significantly lower in non-EU countries such as the UK (37.9%) or the USA (25.6%).
An assessment of Germany as a business location by international investors is shown in ourBusiness Destination Germany 2024study, for which 350 CFOs of the largest German subsidiaries of international groups from the most important investor countries were asked how they rate Germany as a business location. OurGlobal Economic Outlookprovides insights into global growth prospects, challenges and threats. OurCEO-Outlook 2023/24, for which 1,325 CEOs of large companies around the world, including 125 CEOs in Germany, were surveyed, provides assessments of the economic situation, generative AI, ESG and other current topics.
The current forecasts from German economic research institutes and government organizations for Germany's GDP in 2024 currently range between -0.1% and +0.3%.
Data retrieved: 6 September 2024
German Exports Rise in July 2024
German companies exported more goods in July 2024. Exports were 1.7% higher than in the previous month, June 2024. Previously, exports had declined for two consecutive months. Compared to July 2023, however, exports fell by 1.2%.
Imports into Germany saw a stronger increase, rising by 5.4% compared to the previous month. As a result, the trade surplus in July 2024 amounted to 16.8 billion euros, down from 20.4 billion euros in June. This is the lowest figure since May 2023.
German exporters experienced particularly sharp declines in China (-8.0% compared to the previous month). Exports to the USA also fell (-1.7%). Within the EU, however, German exports rose by 3.3%.
A glimmer of hope comes from industrial orders. Incoming orders in the manufacturing sector increased by 3.7% in July 2024 compared to July 2023. They also showed a month-on-month increase of 2.9% compared to June 2024. The positive development in manufacturing orders in July 2024 is mainly due to a significant rise in the "other vehicle construction" sector (aircraft, ships, trains, military vehicles), where new orders were 86.5% higher than the previous month due to several large orders.
Inflation Rate Falls Below Two Percent in August 2024
Germany’s inflation rate dropped significantly in August 2024. Consumer prices rose by only 1.9%, the lowest increase in about three and a half years. In July, the inflation rate had climbed to 2.3%, up from 2.2% in June. Economists attribute the decline mainly to lower energy prices compared to the previous year.
Additionally, the number of companies planning price increases in the coming months decreased in August 2024. The ifo Institute's price expectations barometer fell to 16.3 points (July 2024: 17.6 points). This drop was mainly driven by industry and business-related service providers. In contrast, slightly more companies in consumer-related sectors and the construction industry plan to raise prices compared to the previous month.
The points indicate the net percentage of companies (percentage planning price cuts minus percentage planning price increases) intending to raise prices. A balance of +100 points would mean all companies plan to raise prices, while -100 points would indicate that all plan to lower them.
Current forecasts from German economic research institutes and government organizations suggest that the inflation rate will remain steady at roughly the current level. Projections for the 2024 fiscal year range between +2.2% and +2.7%.
Data retrieved: 6 September 2024
Number of Unemployed Continues to Rise in August 2024
The weakness in the German labor market persisted in August 2024, as the number of unemployed increased once again. Compared to July, an additional 63,000 people are without a job. The current state of the market is also poor in comparison to the previous year: there are now 2.872 million unemployed people, 176,000 more than at the same time in 2023.
The effects of economic stagnation continue to impact the labor market. Overall, the demand for workers in companies has declined compared to the previous year. German businesses, facing a prolonged economic downturn, are exercising the most caution in their staffing plans that they have in three and a half years.
Number of Part-Time Workers Increases
Although the total number of working hours in the second quarter of 2024, at 14.7 billion hours, surpassed pre-pandemic levels for the first time in five years, the growth in employment is slowing significantly. The part-time employment rate has climbed to nearly 40%, and the number of overtime hours worked has reached an all-time low.
Nearly two in five employees now work part-time. The part-time rate increased by 0.5 percentage points compared to the second quarter of 2023, reaching 39.8%. This rise is partly due to employment growth in sectors with a high share of part-time work, such as healthcare, social services, education, and teaching.
Since the final quarter of 2019, employment in the "public services, education, health" sector has seasonally adjusted, grown by 819,000 people, while employment in the manufacturing sector has decreased by 289,000. A concerning trend is that industrial jobs are being gradually reduced, while jobs in the public sector, particularly part-time positions, see a significant increase.
Are you interested in the German market and would like to find out more about Germany as a business location? Stay up to date with our quarterly "Business in Germany" newsletter!
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