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With a gross domestic product of 4,121 billion euros in 2023, Germany is the third largest economy in the world after the United States and China, making it the largest economy in Europe. Exports of motor vehicles and parts and chemical products in particular make Germany the third largest export nation in the world. At 70%, the service sector accounts for the largest share of the country's gross domestic product.

Data retrieved: March 6, 2024

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After a recession in 2023, the outlook for 2024 is also gloomy

Germany's gross domestic product fell by 0.3% in 2023 as a whole. And the German economy is only expected to grow by 0.2% in 2024, according to the forecast in the German government's annual economic report. There is currently no growth impetus coming from either Germany or abroad. Private consumption and corporate investment in Germany also remain subdued. Although companies' business expectations improved slightly in February 2024 compared to the previous month (+0.6 points) according to the ifo Institute, the index remains at a relatively low level of 84.1 points. In February 2022, i.e. before Russia's invasion of Ukraine, it was still at 97.6 points.

Our Global Economic Outlook provides insights into global growth prospects, challenges and threats. Our CEO 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 economic research institutes' current forecasts for GDP growth in Germany vary between -0.5% and +1.3% for the 2024 financial year.

Data retrieved: March 6, 2024

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German exports grow only slightly in January

German exports also remained at the previous year's level at the start of the year. Compared to January 2023, they only recorded a slight increase of 0.3% in January 2024. Imports, on the other hand, fell by 8.3%. Considerable challenges in international trade remain in view of increasing trade barriers and bureaucratic hurdles in the processing of foreign business. The German Chamber of Industry and Commerce (DIHK) expects export growth of just +0.5% for 2024.

Due to the weak start to 2024, the mood in the German export industry also remains gloomy. The monthly index for export expectations published by the ifo Institute rose only slightly from -8.5 points in January 2024 to a value of -7.0 points in February 2024. This means that sentiment in February 2024 is as poor as in December 2023, when the value was -7.1 points. The last time there was a positive double-digit value was in February 2022 with +14.0 points, before the start of Russia's invasion of Ukraine. Only a few sectors are expecting growth in exports, such as food producers or the electrical industry. In mechanical engineering, on the other hand, expectations fell to their lowest level since June 2020.

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Inflation at its lowest level in two years

Lower energy prices have pushed inflation in Germany to its lowest level in more than two and a half years. Consumer prices rose by just 2.5% in February 2024 compared to the same month last year. This is the lowest level since June 2021, when it was 2.4%. In January 2024, inflation was still at 2.9% and in December 2023 at 3.7%.

Cheaper energy was the main reason for the falling inflation rate in February 2024: it cost an average of 2.4% less than in February 2023. In addition, food no longer became as expensive. It only cost 0.9% more. Services were again 3.4% more expensive than a year earlier. Core inflation - which excludes energy and food prices - also remained at 3.4%.

German consumers are hoping that inflation will continue to fall, as fewer companies are planning to raise their prices in the coming months: The ifo Institute's barometer for price expectations fell to 15.0 points in February 2024 (January 2024: 18.8 points). The points indicate the percentage of companies that intend to raise their prices on balance (percentage of companies that intend to lower their prices minus the percentage of companies that intend to raise their prices). If all the companies surveyed intended to increase their prices, the balance would be +100 points. If they all wanted to lower their prices, the balance would be -100.

The current forecasts of the economic research institutes on the development of the inflation rate in Germany indicate that the value will remain at around the current level, fluctuating between +2.1% and +3.5% for the 2024 financial year.

Inflation forecast

Data retrieved: March 6, 2024

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Number of unemployed rises slightly in February

The number of unemployed people in Germany rose only slightly by around 8,000 to 2.814 million in February 2024 compared to the previous month. However, this is 194,000 more people than in February of the previous year. The unemployment rate was 6.1% in February 2024. In February 2023, on the other hand, it was still at 5.7%. The weak economic environment is dampening the overall robust labor market. Unemployment and underemployment are on the rise and demand for labor is declining.

Over half of electricity in Germany to be renewable in 2023

According to the Federal Network Agency, more than half of the electricity produced in 2023 was generated from renewable energy sources for the first time. Overall, generation from renewables was therefore 8.6 percentage points higher than in the previous year and accounted for 56.0% of total generation (2022: 47.4%). With 26.5% of total generation, onshore wind power plants are the largest renewable energy source, followed by photovoltaics (11.2%) and offshore wind power plants (5.2%).

The largest conventional energy sources in 2023 were lignite with a share of 17.4% of total generation, followed by natural gas (11.2%) and hard coal (8.9%).

The share of renewable energies in electricity consumption also increased significantly. While around 46% of electricity consumption was covered by climate-neutral electricity in 2022, this figure had already risen to 52% by 2023. The aim is to achieve at least 80% by 2030. The expansion targets are set out in the Renewable Energy Sources Act (EEG).

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!

Watch now: Business Location Germany at the KPMG Zukunftsgipfel 2023 (in German) and the International Business Summit 2022

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