The German economy is still unable to recover. After subdued developments in the second quarter of 2024, in which gross domestic product even fell by 0.1 % according to the Federal Statistical Office, it is unlikely to gain momentum in the current third quarter either. Economic output is expected to stagnate for the whole of 2024.
Despite the increasing stabilization of inflation rates at a low level and the noticeable rise in wages, private consumption will remain subdued. Added to this is the subdued development of the global economy, which is curbing demand for German exports – the Chinese economy is expanding less strongly than in the past, and developments in the European Union are also difficult. Moreover, the risks are not abating: there are no signs of any easing in the wars in the Middle East and Ukraine. Added to this is the trade dispute between the European Union and China.
German industry, in particular, is clearly weak. Industrial production has fallen again at the current margin and incoming orders are not gaining momentum; the order backlog has recently fallen despite faltering production. The ifo business climate index fell significantly in July, with companies taking a more skeptical view of both the current situation and the future than in June. The recovery in the industry is still a long time coming. Industrial companies currently appear to be adopting a wait-and-see attitude and waiting for the global economic situation to stabilize further and for interest rates to fall further.
Although the services sector continues to perform somewhat better, there are also signs of a slight downturn here. After a constant upward trend since the beginning of the year, the consumer climate took a slight dip in July; the European Football Championships clearly did not generate the euphoria that many had hoped for. The business climate for service companies has also declined, which is mainly due to a weaker outlook. Meanwhile, the situation on the labor market remains stable, even if the weak economic situation is making itself felt. For example, ifo employment expectations fell in July, and the IAB labor market barometer also remains at a low level.
The German economy is, therefore, struggling to regain momentum. At the moment, neither an upturn nor a recession is in sight, but rather very meagre growth. Potential growth is also too low due to a lack of investment. Added to this are factors such as the weakening global economy, higher interest rates, and the aftermath of the energy price crisis.
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