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Economic Outlook on Germany

After managing to regain a foothold over the summer, the German economy slowed down towards the end of the year with the pandemic additionally curbing activity once again. While commodity and supply shortages hampered wide sections of the manufacturing industry, the services sector became the engine of growth over the summer. All in all, we expect gross domestic product for the current year to come in at only 2.5 percent over last year in real terms.

German GDP will only get back to pre-crisis levels in 2022. The German economy continued to grow throughout the summer 2021. Real domestic gross product (GDP) rose 1.7 percent in the third quarter compared to the second quarter, following an increase of two percent in the second quarter. Compared to GDP levels before the outbreak of the pandemic (fourth quarter 2019), economic output was down by 1.1 percent. Other major EU member states recorded higher levels of growth, with Spain rising 2.7 percent, France 3.3 percent, and Italy 3.8 percent, but these countries also experienced much steeper drops in GDP last year. Many industries managed to exceed pre-crisis levels, with public service providers 2.7 percent higher, construction 2.7 percent, financial and insurance providers 1.8 percent, information and communications 1.2 percent and retail, and transport and hospitality 0.2 percent, but gross value added in manufacturing was down by as much as 8.8 percent. Other industries which failed to reach pre-crisis levels were corporate service providers (down 2.5 percent) and other service providers (down 2.3 percent). 

Foreign trade: Exports much lower than expected

Although momentum has begun to tail off just recently, German exports increased by 33.5 billion euros or eleven percent in the third quarter 2021 compared to the same period last year to reach 337.4 billion euros (country-specific seasonally adjusted data is not available). Compared to the second quarter 2019, this represents an increase of two percent. Supply bottlenecks in the automotive industry are curbing “made in Germany” exports. The strongest growth, in absolute terms, was in trade with the US (up 4.91 billion euros or 18.8 percent) and with the Netherlands (up 4.10 billion euros or 19.6 percent). Among EU partner countries, exports to Italy, Austria and Poland expanded by more than two billion euros in each case.

German imports also recorded a robust increase year on year in the third quarter 2021, rising 39.5 billion euros or 15.7 percent. The strongest growth in nominal terms was in trade with the Netherlands (up 5.21 billion euros or 25.2 percent), with China (up 4.79 billion euros or 16.1 percent) and Belgium (up 4.48 billion euros or 52.2 percent). The steep increase in imports from energy exporters, with imports from Russia up by 74.3 percent and Norway up by 140 percent, is partially due to surging energy prices. Imports were down from Ireland (down 564 million euros or 9.9 percent) and from Slovakia.

Robust rise in incoming orders for industry

According to preliminary figures, incoming orders for German industry were 6.9 percent lower in October 2021 than in September, following price, seasonal and calendar adjustment. Without large orders, however, incoming orders were only down by 1.8 percent. Year on year, incoming orders were down 0.8 percent – the first time this figure has been negative in thirteen months. Demand from at home bucked the downward trend, rising 3.4 percent above the previous month. Orders from abroad, meanwhile, plummeted 13.1 percent on account of the high volume of large orders placed in September, inflating the base level.

Shortages limit production

The continuing shortages of some intermediates are still limiting production in many factories. Order books are consequently continuing to swell. According to figures from the ifo Institute, the reach of orders in hand in manufacturing once again hit a new record high of 4.2 production months at the beginning of the fourth quarter 2021.

Business climate: partial lockdown wearing down sentiment

In November 2021, the ifo business climate index for Germany dropped for the fifth successive time. Current business and business prospects both dropped by 1.2 index points. While the majority of companies surveyed were still optimistic about their current business situation, most companies were pessimistic about the next six months.