SNAPSHOT

Germany, 01.09.2023

 

In the second quarter of 2023, the German economy experienced a period of stagnation following a mild recession in the winter half of 2022/23. Despite the stabilizing influence of private consumption, production and exports were dampened by persistently weak external economic conditions. Current leading indicators do not yet suggest a sustainable economic recovery in the coming months.

Industrial production exhibited a significant decline in June compared to the previous month (-1.3%), with the automotive industry and construction sector particularly affected, recording substantial decreases. While order intake surged in June (+7.0%), this was largely attributed to volatile large orders. Excluding these large orders, order intake remained downward. The ifo Business Climate Index deteriorated further in July, with expectations for future development significantly in negative territory.

In the retail sector, excluding automotive, there was a slight decrease in sales in June compared to the previous month (-0.6%), but the second quarter overall saw an increase of 1.3% compared to the previous quarter. Given declining inflation rates and rising wage settlements, private consumption may provide increasing momentum in the coming months.

The inflation rate decreased slightly in July to 6.2% (compared to 6.4% in June), with the core inflation rate also declining to 5.5%. Although food prices continued to rise disproportionately (+11.0%), the rate of increase has decreased in recent months compared to the previous year.

Despite signs of economic weakness in July, the labor market stabilized, with a slight decrease in the seasonally adjusted unemployment rate by 4,000 individuals. One contributing factor may be the impact of refugees participating in integration courses, which has mitigated unemployment. Employment remained unchanged in June, with a significant upward revision of 20,000 individuals in May. This may reflect the revised official GDP figures released at the end of July. Social security employment increased by 14,000 individuals in May. In July, short-time work continued to decline significantly, in part due to the expiration of eased access conditions at the end of June. Leading indicators from IAB and ifo developed moderately in July, indicating reduced momentum in the labor market. The number of reported job vacancies decreased in the second quarter to 1.74 million, 10% lower than the previous year's level. Companies are planning fewer new hires, but overall, the demand for labor remains robust. However, the weak underlying dynamics are expected to persist until the German economy regains momentum.

In May 2023, there was an increase in the number of business insolvencies, rising by 3.5% compared to the previous month and 19% compared to the same month the previous year. As a leading indicator, the number of regular insolvencies provides insights into future developments, and according to preliminary data from the Federal Statistical Office, these insolvencies increased by 4.1% in July, significantly exceeding the previous year's figures by 23.8%. Overall, the trend shows a continuous increase in insolvencies since the second half of 2022, albeit from a very low level.

Global economic prospects are also dimming, with worldwide industrial production remaining stable, global trade experiencing slight growth, but leading indicators for global trade suggesting an uneven path in the coming months. This situation, along with continued high inflation rates and the effects of monetary tightening, is impacting the German economy.

In summary, the German economy stagnated in the second quarter of 2023, facing challenges such as weak external economic conditions, high inflation rates, and uncertainties. The outlook for a sustained economic recovery remains subdued for the time being.

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Data by FEDERAL MINISTRY FOR ECONOMIC AFFAIRS AND CLIMATE ACTION, GERMANY