German Business

> German exports and imports fell sharpy in May 2024

> EU countries suffer the consequences of a weak German economy

> Germany expects economic growth against a backdrop of stubborn inflation

German exports and imports fell sharpy in May 2024

German trade with the rest of the world down sharply

July 2024: Unexpectedly, German exports and imports fell sharply in May 2024. Exports were down by 3.6 per cent compared to April, while imports declined by 6.6 per cent. According to the German Statistical Office (Bundesamt für Statistik), monthly exports amounted to 131.8 billion euros, while the country imported goods and services worth 106.7 billion euros. Germany’s foreign trade balance thus closed with a surplus of 24.9 billion euros in May 2024. In April 2024, the balance of foreign trade was 22.2 billion euros and 16.8 billion euros in May 2023.

Right now, German exporters are lacking momentum. The industry’s lacklustre performance was also underlined by the fall of the monthly economic IFO index, which went into the red. It still stood at plus 0.2 points in May but dropped to minus 1.0 points in June 2024.

Industrial production is also struggling. In May, it experienced a drop of 2.5 per cent compared to the previous month. It thus reached its lowest level in four years.

In May, Germany exported goods worth 72.3 billion euros to EU member states and imported goods worth 55.7 billion euros. According to the data, exports to EU member states fell by 2.5 per cent compared to April 2024. Exports to the USA fell by 2.9 per cent and exports to China by as much as 10.2 per cent.

Source: Bundesamt für Statistik

EU countries suffer the consequences of a weak German economy

June 2024: The individual economic well-being of European Union (EU) member states benefits the whole Union. Due to its size, this is particularly true for Germany. The country is the most important export market for the majority of EU countries. More than half of German imports come from other EU countries. Germany accounts for a third of Czech exports and around a quarter each for Austria, Poland, Luxembourg, Hungary and the Netherlands. The most important industrial sectors for German imports from within the EU are motor vehicles, chemicals and engineering products and services. It must, of course, be noted that many exporters to Germany are German subsidiaries such as Skoda in the Czech Republic.

Directly and indirectly, German EU imports generate over 300 billion euros – or almost three per cent - of value added in the other EU countries. This means that German import demand secures around five million jobs in other EU countries. German imports are particularly imported to countries in Eastern and Central Europe as well as Austria.

The current weakness of the German economy has therefore a marked detrimental effect on GDP growth in many other EU countries. If Germany's gross domestic product (GDP) were to grow by one percentage point more per year until 2026 than currently expected, GDP in the rest of the EU (excluding Germany) would be 0.18 percentage points higher. Germany's importance is significantly greater than that of the other major European economies. One percentage point higher GDP growth in France or Italy would lead to additional growth of just 0.08 percentage points in the rest of the EU.

Study by Prognos / Vereinigung der Bayerischen Wirtschaft e.V

Germany expects economic growth against a backdrop of stubborn inflation

June 2024: The German economy is slowly regaining its strength after a roughly two-year period of sluggishness, according to the German Central Bank’s (Bundesbank) latest economic forecast. Bundesbank President Joachim Nagel said the economy was extricating itself from a period of weakness. The central bank’s forecast expects German gross domestic product (GDP) to show moderate growth this year and increase more strongly in the following years. Not only will private consumption gradually pick up again, but export business will also improve.

Private consumption and exports will drive the economic recovery over the next two years. Households will be benefiting from strong wage growth, a gradual decline in inflation and a stable labour market, Joachim Nagel explained, while at the same time warning: “While the inflation rate in Germany is continuing to decline, it is doing so at a subdued pace.”

According to the Bundesbank’s ‘Forecast for Germany’, real GDP will increase by a calendar-adjusted 0.3 per cent this year. In 2025 and 2026, the German economy will then grow by 1.1 per cent and 1.4 per cent respectively.

The Bundesbank’s expects inflation to decline from an annual average of 6.0 per cent last year to 2.8 per cent this year. Energy and food price inflation in particular is likely to ease considerably this year. However, inflation is proving to be stubborn, especially in the case of services, where strong wage growth and the resulting cost pressures are major factors.

Negotiated wages are expected to rise particularly sharply this year and continue to see strong growth thereafter. The higher labour costs will also be reflected in food prices, especially next year. Energy price inflation will then also pick up again.

Headline inflation is forecast to decline slightly to 2.7 per cent in 2025, before dropping more sharply to an average of 2.2 per cent in 2026. Core inflation (the rate excluding energy and food) is expected to decrease only hesitantly, falling to 3.1 per cent this year, 2.5 per cent in 2025 and 2.3 per cent in 2026.

The Bundesbank’s ‘Forecast for Germany’ sees public finances improving, with the government deficit ratio expected to shrink from 2.5 per cent last year to 1.1 per cent in 2026. Until 2025, this will be due to the expiry of fiscal crisis assistance measures. The decline in assistance will outweigh sharply rising expenditure in areas such as pensions, defence and staff. Beyond 2025, relief will stem chiefly from somewhat more restrained central government spending, including special funds, and a more favourable economic situation. The debt ratio is expected to fall to somewhat more than 60 per cent by 2026.

Germany’s Economics Minister Robert Habeck is even more optimistic. “If things go well, economic growth will be one to one and a half per cent,” the minister said in Berlin. In April 2024, the German government had predicted growth of 1.0 per cent for 2025. Last year, the German economy shrank slightly and only minimal growth is expected this year.

According to the latest data from the German Statistical Office (Statistisches Bundesamt), exports increased by 1.6 per cent in April 2024 compared to the previous month. Goods worth 136.5 billion euros were exported. This was 1.9 per cent more than a year earlier. Imports rose by 2.0 per cent compared to the previous month. However, compared to one year ago, there was a decline of 0.6 per cent to 114.5 billion euros worth of goods and services imported.

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