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Germany is the fourth largest economy in the world after the United States, China and Japan and the largest economy in Europe. It is the third largest export nation globally: With 70% the service sector contributes the largest part to the country’s GDP.

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IMF lowers GDP forecast to 1.2% growth in 2022

After growing 2.9% in 2021, the IMF expects the German economic growth to slow down sharply to 1.2% in 2022 owing to elevated energy import prices and weak consumer confidence. Supply bottlenecks, combined with the usual delayed pass through of wholesale to retail gas prices, also drive down their expectations of growth to just 0.8% in 2023. These growth rates for 2022 and 2023 are, respectively, - 0.9 and 1.9% points below what was projected in the IMF’s April World Economic Outlook.

Further insights into global growth prospects, challenges, and threats are provided in our Global Economic Outlook.

Foreign trade turns positive again in June - but risks remain

After Germany's foreign trade balance slipped into negative territory in May for the first time since 2008, the country returned to a significant export surplus in June.

In June 2022, Germany exported goods valued at €134.4 billion (+18.4% compared to previous year’s month) and imported goods valued at €127.9 billion (+27.9% compared to previous year’s month).

However, the slowdown in the economies of key export partners, such as the USA, China, and the euro zone, is dampening demand for products made in Germany. In addition, Germany is dependent on energy imports from abroad. The threat of a gas shortages is also increasingly weighing on the outlook for the export industry.

Inflation remains at record high

Germany has not been spared the effects of rising inflation worldwide. Due to the war in Ukraine, the main cause of high inflation continues to be price increases for energy products. Rising prices are also being observed for many other goods, especially food. However, special effects such as fuel discounts and the impact of the 9€-ticket continue to depress the inflation rate in July to 7.5%, a decrease of 0.1%-points on the previous month.

In addition to temporary base effects from the past, crisis-related effects such as supply shortages and significant price increases at upstream economic stages are increasingly being felt; this is also reflected in the consumer price index. Following the end of lockdowns around the world, global demand and private consumption are pushing up prices.

Further increase in unemployment due to a growing number of Ukrainian refugees

The start of the summer break and the reception of Ukrainian refugees led to another significant month-on-month increase in unemployment in July 2022, up 107,000 to 2.47 million people. Refugees from Ukraine, who were initially classified as asylum seekers, are now entitled to basic benefits, and are thus also included in the unemployment statistics. The unemployment rate rose by 0.2%-points from June to July to 5.4%, 0.2%-points lower than in the same month last year.

Russia restricts gas flow to 20%

As announced, Russia further curtailed gas deliveries via the Nord Stream 1 pipeline to 20% of capacity due to another missing turbine. In parallel with the curtailment, the European gas price continued to rise. Russia blames technical problems related to sanctions imposed on Moscow by the West after the attack on Ukraine. The federal government considers this to be a pretext and sees political reasons.

You are interested in the German marketplace and would like to know more about Germany as a business location? Stay up to date with our quarterly published “Business in Germany”-Newsletter!

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