29.01.2024
International
The overall economic situation at the turn of 2023/24 remains very weak due to the after-effects of the previous crises, in particular the considerable loss of purchasing power as a result of the massive rise in energy and food prices, the weak global economic development, the geopolitical crises and the tightening of monetary policy: According to initial, provisional information from the Federal Statistical Office, gross domestic product at the end of the year fell by around 1⁄4 % compared to the previous quarter, adjusted for price, seasonal and calendar effects. This results in a decline in GDP of 0.3% for the year as a whole. This result was largely expected. Private consumption in particular fell by 0.8% in price-adjusted terms last year due to the lingering loss of purchasing power and reluctance to spend, partly as a result of the increased uncertainty caused by the geopolitical conflicts. This was still slightly below the level of the pre-coronavirus year 2019. Government consumer spending was also down on the previous year at -1.7 %. This reflects the normalization of government spending following the significant expansion during the coronavirus pandemic. Gross fixed capital formation fell slightly by -0.3%, primarily because construction investment fell again by around 2% on a price-adjusted average in 2023 as a result of higher financing and material costs. In contrast, investment in machinery and equipment increased significantly by +3.0 %. In addition to the still high order backlogs and the good equity base of companies, increasing investments in transformation - supported by government measures - are likely to have contributed to this. Exports fell by 1.8% as a result of weak demand from abroad. Imports fell even more sharply by -3.0% as a result of weak domestic demand, which is why foreign trade contributed +0.6 percentage points to GDP growth.
The labor market proved to be robust despite the weak economic phase; employment continued to increase over the course of the year (+0.7%) and reached a historic high of just under 46 million people on average in 2023.
The development of private households' disposable income is also positive, with a noticeable increase of +5.9 % in 2023. Both compensation of employees (+6.7%) and corporate and property income (+6.5%) were up significantly. In addition to noticeable wage increases, income growth was also supported by government relief measures to mitigate the loss of purchasing power due to inflation, such as the energy price brakes, the possibility of tax-free inflation compensation bonuses and increases in social benefits (housing benefit, citizens' allowance, increase in child benefit). These measures benefited the lower income groups in particular.
In view of the recent continued weakness of leading indicators, ongoing and new geopolitical crises, which could lead to rising transportation costs and delays in supply chains, as well as temporary administrative increases in consumer prices at the start of the year, a turnaround in the economic trend is not expected for the first quarter of this year either. However, with a fall in inflation, rising real wages and a gradual recovery in the global economy, key negative factors for economic development in Germany should ease over the course of this year and a recovery driven primarily by the domestic economy should set in.
Global industrial production moved sideways in October, following slight increases in the previous two months. The sharp rise in interest rates and the ongoing reduction in high inventory levels in the wake of the supply chain disruptions continued to weigh on the industrial economy. The global purchasing managers' indices also remained below the growth threshold in many of Germany's key trading partner countries in December. The S&P Global sentiment indicator recovered further in December and is now slightly above the growth threshold at 51 points. While sentiment in the manufacturing sector deteriorated slightly from 49.3 to 49.0 points, it improved by one point to 51.6 points among service providers.
Global trade continued to grow slightly in October compared to the previous month (+0.4%) and the RWI/ISL Container Throughput Index also points to modest expansion in November with a slight (seasonally adjusted) increase from 123.7 to 124.5 points. However, the North Range Index for European ports fell quite significantly at the same time (from 103.7 to 101.0 points). For December, on the other hand, the latest ship movement data from the Kiel Trade Indicator (KTI) signaled another overall decline in global trade activity. The attacks on freighters in the Red Sea also contributed to this, leading to a slump in container shipments through the Red Sea and significantly longer transport times as a result of ships being diverted around Africa.
However, according to forecasts by international organizations, a moderate recovery in global trade volumes is expected this year once the inventory corrections have been completed and new business is therefore on the rise again (2023: 0.5%, 2024: 3.1%) - even if global GDP growth is likely to remain below average at around 3%. In the western economies, economic growth is likely to converge in the wake of the slowdown in the US and the recovery in the EU countries following the severe impact of the energy price crisis. In Asia, on the other hand, a divergence is expected between the weakening expansion rates in China and Japan on the one hand and the relatively strong growth in the other Asian countries, especially India, on the other. All in all, demand for German export goods is likely to increase noticeably again this year following the pronounced weakness last year.
In November, nominal exports of goods and services, adjusted for seasonal and calendar effects, rose significantly compared to the previous month for the first time since spring 2023 (+1.9%, October: +0.1%).
They were also up by 1.1% in the less volatile two-month comparison. Deliveries to EU countries outside the eurozone made a particular contribution to this (+5.9%). Nominal imports of goods and services also recovered noticeably with an increase of 1.3% compared to the previous month (October: -0.1%). In a two-month comparison, imports also turned positive for the first time since June 2023 (+0.9%).
The price declines for energy imports continue to make themselves felt in foreign trade prices. While import prices fell noticeably by -9.0% compared to November 2022, they stagnated on a seasonally adjusted basis compared to the previous month. At the same time, export prices fell slightly by 0.2 % compared to the previous month, mainly due to declining prices for manufacturing exports. The terms of trade deteriorated by 0.2% overall compared to the previous month.
The monthly trade surplus increased from 16.4 billion euros in October to 17.6 billion euros in November as a result of the stronger expansion of exports compared to imports. At €159.8 billion, the cumulative trade surplus in the period from January to November 2023 is more than twice as high as the previous year's figure in the same period (€76.3 billion).
Leading indicators are currently volatile and are sending mixed signals for future developments: incoming orders from abroad have been trending downwards since the summer, with demand from the eurozone in particular continuing to decline significantly of late. The ifo export expectations worsened again in December from -4.1 to -6.7 points, having previously brightened for two months in a row. In addition to companies in the mechanical engineering sector, car manufacturers are now also expecting fewer orders from abroad again. The ship movement data of the Kiel Trade Indicator currently signal a decline in real German exports for the reporting month of December (-1.9% year-on-year).
Although the November data for German foreign trade represents a ray of hope for the export-oriented German industry, a rapid trend reversal is not to be expected in view of the still weak overall indicator situation. The majority of companies surveyed by the ifo Institute continue to expect exports to decline in the coming months and container handling and ship movement data also remain subdued. In addition, the risks for global trade have recently tended to increase as a result of the crisis situation in the Red Sea and the associated higher transportation and freight costs.
According to the Federal Statistical Office, production in the manufacturing sector fell by 0.7% in November compared to the previous month. This continued the downward trend that has been evident since spring last year. In November, there were further declines in industry and construction (-0.5 % and - 2.9 % respectively), while the energy sector once again reported a significant increase (+3.9 %).
Within industry, different developments were observed in the individual economic sectors in November: The weighty sectors of motor vehicles and parts and electrical equipment reported decreases in their output of 0.6% and 3.3% respectively; there were also declines in pharmaceutical products (-3.8%) and data processing equipment, electrical and optical products (-5.7%). In contrast, there was an increase of +1.1% in the important mechanical engineering sector, as well as in the energy-intensive industrial sectors as a whole (+3.1%), which was distributed across the five sectors as follows: chemical products (+5.1%), coking and petroleum refining (+3.2%), paper and cardboard (+2.6%), glass, glassware and ceramics (+1.8%) and metal production and processing (+0.5%).
Industrial production in November was 1.9% below its average level in the third quarter, meaning that another noticeable decline is expected for the fourth quarter as a whole.
According to the Federal Statistical Office, incoming orders increased slightly in November compared to the previous month (+0.3%), following a noticeable decline in October (-3.8%). Once again, domestic demand (+1.4%) - particularly for capital goods (+3.4%) - provided support, while orders from abroad continued to fall (-0.4%) due to the ongoing decline in orders from the eurozone. Incoming orders adjusted for large orders were also slightly down on the previous month (-0.6%). More orders were received in most sectors of the economy, with the important areas of motor vehicles (+4.7%), chemical products (+3.7%), electrical equipment (+4.8%) and mechanical engineering (+3.9%) in particular recording significantly higher orders than in the previous month. In contrast, the volatile other vehicle construction sector experienced a sharp rebound (-32.1%) following the strong increase in the previous month. Orders in the metal production (-7.1%) and pharmaceutical products (-4.7%) sectors were also lower than in the previous month.
While there have recently been signs of stabilization in incoming domestic orders in key areas, weak foreign demand, particularly from the eurozone, continues to weigh on the industrial economy. Leading indicators are currently sending mixed signals, with sentiment among companies having recently deteriorated again somewhat. A rapid turnaround in the industrial economy is therefore not expected. As the year progresses, however, industrial production should start to recover against the backdrop of the expected domestic economic upturn and rising exports.
Real sales in the retail sector excluding motor vehicles fell significantly by 2.2% in November compared to the previous month, following a noticeable increase in October (+1.3%). Compared to the same month last year, the retail sector reported a 2.0% drop in real sales in November, with the high price increases continuing to make themselves felt. Compared to the previous month, food retail fell by 0.4% in real terms in November. As a result of the sharp rise in food prices, this segment of the retail trade has seen a year-on-year decline in sales in real terms for more than 2.5 years. Food prices continue to rise at an above-average rate, even though their upward price trend has continued to slow compared to the same month last year (December: +4.5%). Internet and mail order sales fell by 1.5% in November (-1.8% compared to the previous year).
There was a slight increase of 1.4% in new car registrations in December compared to the previous month; in a more meaningful two-month comparison, new registrations also stabilized (+0.2%) after high fluctuations in the previous months. New car registrations by private individuals rose sharply by 10.3% in December and also showed a clear upward trend of +7.3% in the two-month comparison. New car registrations by companies and the self-employed, on the other hand, fell for the fourth time in a row in December (-3.5%). The main reason for this volatile development is likely to be pull-forward effects in connection with the expiry of the environmental bonus, which ended at the end of August for commercial registrations and on December 18 for private individuals.
Early indicators for the development of private consumption currently present a mixed picture: according to the GfK forecast, the consumer climate will improve once again in January after deteriorating slightly between September and November. Ifo business expectations in the retail sector deteriorated in December (-2.8 points) and remain in negative territory. The assessment of the current situation has also deteriorated. Retailers recently rated Christmas business before the holidays as disappointing.
While consumer sentiment among private households is therefore tending to improve, the business situation in the retail sector is assessed as unsatisfactory according to surveys conducted by ifo and the HDE trade association. However, with incomes continuing to rise and inflation rates falling, private consumption is likely to recover in the course of this year.
The inflation rate (price level increase within a year) is expected to have amounted to 3.7% in December. In November, the rate was still at 3.2%. The main reason for the increase in the rate was a base effect due to the so-called December emergency aid at the end of 2022, which had a dampening effect on the consumer price index a year ago.
The core rate (excluding energy and food) fell further in December to 3.5% (Nov.: +3.8%) and was therefore only slightly below the inflation rate due to the base effect for energy. The annual average increase in consumer prices in 2023 is expected to be 5.9% (core rate: +5.1%). Food prices again rose disproportionately in December compared to the same month of the previous year (+4.5%), although the upward price trend also continued to slow here (Nov.: +5.5%). Following two falls in December, energy prices rose again by 4.1% year-on-year due to the base effect (Nov: -4.5%; Oct: -3.2%). In the services sector, inflation continued to weaken slightly at +3.2% (Nov: +3.4%).
A further slowdown in price momentum can also be observed at the upstream economic levels. Producer prices fell by 7.9% in November 2023 compared to the same month last year. In October, the rate was -11.0%. As in previous months, the main reason for this was a base effect caused by the high price increases in the previous year due to the effects of the war in Ukraine. Compared to the previous month, producer prices fell by 0.5% in November. Import prices in November were 9.0% lower than in the same month last year (-0.1% compared to the previous month). Wholesale sales prices fell by 3.6% in November compared to the previous year. There was also a decrease compared to the previous month (-0.2 %).
Prices for natural gas on the spot markets have recently fallen again. At around €30/MWh, the TTF Base Load is currently around 55% below the level in November 2022. Compared to the previous month, there has been a decline of around 20%. Market expectations indicate that natural gas prices will remain below € 50/MWh in the coming quarters.
At the beginning of this year, the development of inflation will be noticeably influenced by tax and fiscal measures. On the one hand, temporary measures that were implemented in the course of the coronavirus and energy crisis to relieve the burden on private households (reduction in VAT rates in restaurants and for gas and district heating, price brakes for electricity and gas, etc.) are coming to an end. On the other hand, measures in the course of the consolidation requirements of public budgets are likely to have a price-increasing effect (increase in CO2 pricing, discontinuation of subsidies for grid fees for electricity, increase in air traffic tax). As the year progresses, however, inflation-reducing factors will continue to dominate, such as price declines at upstream economic levels due to lower energy and producer prices on the markets, monetary policy tightening by the ECB, appropriate wage settlements and the normalization of corporate profit margins.
At the end of the year, the labor market showed the usual seasonal pattern in favorable weather conditions. As usual in December, registered unemployment increased by 31,000 in original figures compared to the previous month. Adjusted for seasonal effects (sb), this represents a slight increase of 5,000. Employment increased significantly in the last reporting month of November compared to the previous month (sb +22,000 persons). According to initial estimates by the Federal Statistical Office, it reached a new high of 45.9 million people on average in 2023. Employment subject to social insurance contributions also rose significantly in October (sb +34,000). Although short-time work increased slightly in October, the figures for December were down again. Leading indicators developed somewhat better across the board. The number of officially registered jobs rose again for the first time since mid-2022. The willingness of companies in Germany to hire has increased again slightly, particularly in the service sector. The IAB labor market barometer also improved, even though unemployment is likely to rise slightly. The more favorable early indicators do not yet point to a fundamental trend reversal. The outlook is expected to improve from spring, when the economy is also likely to pick up speed again.
According to final results, the number of corporate insolvencies filed in October 2023 fell from 1,557 to 1,481, or by 4.9% compared to the previous month. Compared to the same month last year, there was an increase of 19.0 %. From January to October 2023, the number of corporate insolvencies filed was 24.1% higher than in the same period in 2022. The comparatively significant increase is due to base effects (historically low insolvency figures until mid-2022 due to special coronavirus effects) and a challenging economic environment. Nevertheless, the insolvency figures are still slightly below the average for 2016-2019, and the gap widened again in October 2023 (September: -4.4%; October: -9.5% compared to the respective monthly average for 2016-2019). The number of employees affected by insolvency remains at an elevated level, still 54.3% higher in October (September: +91%) than in the same month last year. Based on the year to date (January to October), the increase compared to the same period of the previous year is even around 123% and 46.2% compared to the pre-corona average for January to October. The expected claims of creditors from the reported corporate insolvencies increased by around 97% in October 2023 compared to the same month of the previous year and by 95% in the course of 2023 compared to 2022. The figures show that larger companies are currently more affected by insolvencies.
The early indicator IWH insolvency trend shows an increase in corporate insolvencies of 10.3 % for December 2023 compared to the previous month of November. A year-on-year increase of 22.6% was recorded (November: +20.9%). This is the highest December figure since the IWH Insolvency Trend began recording data in 2016. The fourth quarter of 2023 was therefore probably the quarter with the highest number of insolvencies in the previous year, although the fourth quarter normally has the lowest number of insolvencies in a year. According to the IWH, the rise in insolvency figures is likely to continue this year.
[1] This report uses data available up to January 15, 2024 (10 a.m.). Unless otherwise stated, these are rates of change compared to the respective previous period based on price-, calendar- and seasonally-adjusted data.
Source: BMWK