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Article - Economic Situation and Cyclical Development

Economic Situation and Cyclical Development

Introduction

The German economy is gradually emerging from its slowdown. For 2020, the Federal Government expects an annual average increase in gross domestic product of 1.1% in price-adjusted terms. Economic dynamism remained restrained at the beginning of 2020. In the course of the year, the economy is likely to pick up some slight momentum.

The coronavirus pandemic has led Germany’s economy – like the global economy – into a recession. However, the 2020 interim projection, which was published in early September by the Federal Ministry for Economic Affairs and Energy, shows that the worst fears have not materialised and that the economy is recovering faster than expected. The recession in Germany has already bottomed out.

Three times a year, the Federal Government submits a projection for Germany’s overall economic development under the lead responsibility of the Federal Ministry for Economic Affairs and Energy. The annual projection is published by the Federal Government each January as part of the Annual Economic Report. The spring and autumn projections serve as a basis for the Working Party on Tax Revenue Forecasting to estimate the tax revenues. The budgets of the Federal Government, the Länder, municipalities and social insurance funds are based on the key overall economic figures that are forecast. The information provided to the European Union in the context of the Stability and Growth Pact is also based on these projections.

The 2020 interim projection falls outside the usual series of projections. It will form the basis for the next tax revenue forecast in September, thus providing a solid foundation for the 2021 budget.

The Federal Government forecasts short-term and medium-term economic development and the production potential. These estimates serve as the basis for the calculation of the maximum annual net new borrowing in the context of the 'debt brake' under Articles 109 and 115 of the German Basic Law. You can find projections from preceding years in the Archive (in German).

Key figures of the 2020 interim projection

Gross domestic product by expenditure (price adjusted)201920202021
Year-on-year change (in per cent)
Gross domestic product [1]0,6-5,84,4
Private consumption [2]1,6-6,94,7
Public-sector consumption2,74,8-0,4
Gross fixed capital formation2,5-3,75,2
- of which equipment0,5-16,512,0
- buildings3,83,82,4
- other investment2,7-1,73,1
Changes in inventories and net acquisition of valuables (contribution to GDP growth)-0,70,00,0
Domestic demand1,2-3,63,6
Exports1,0-12,18,8
Imports2,6-8,17,5
Net foreign demand (contribution to GDP growth) [3]-0,6-2,30,9
Private consumption [2]1,30,51,2
Gainfully active persons (domestic)45,344,945,1
Unemployed persons (Federal Employment Agency)2,272,692,58

[1] In 2020, calendar-adjusted growth is 6.1%, the rate over the course of the year is 4.9%.
[2] Including non-profit-making organisations.
[3] Absolute change in net foreign demand in per cent of pre-year GDP (= contribution to change in GDP).

Key figures on the situation of the German economy

1.1
Symbolicon für Wachstumskurve

per cent rise in gross domestic product (GDP)
in 2020 compared with the preceding year

2.0
Symbolicon für Lastenwagen

per cent rise in exports
in 2020 compared with the preceding year

1.3
Symbolicon für Geld

per cent rise in consumer spending
in 2020 compared with the preceding year

190
Symbolicon für Arbeiter

thousends more people in work
in 2020 compared with the preceding year

Current situation

The Economic Situation in the Federal Republic of Germany in December 2020

The German economy was able to continue its recovery. However, the partial lockdown that began in November, followed by the hard lockdown that was recently announced, is likely to put a stronger damper on cyclical development in Q4. Industrial output continued to grow in October. Strong momentum for growth came from the important automotive sector. Order book entries suggest that the industrial sector is set to continue its recovery, but the pandemic situation may slow down this development. Retail turnover (excluding motor vehicles) recently saw a slight upward trend. The number of monthly new-car registrations by private households almost reached the mark of 120,000 in November, well above the monthly average for 2018 and 2019. The latest leading indicators, however, suggest that the consumer climate is worsening. So far, the new partial lockdown has not affected the job market. The positive development regarding unemployment figures, short-time work, and gainful employment continued in November (in some cases, October figures).The significant increase in registrations for short-time work in November indicates that the number of people in short-time work is on the rise.

Overall situation: recovery fraught with uncertainty

The economic recovery process has been continuing, but the pandemic situation poses a risk. Following a historic 9.8% drop in GDP in Q2, the German economy experienced a palpable recovery in Q3, growing by 8.5%. This allowed economic output to reach approx. 96% of the level posted in Q4 2019, before the outbreak of the pandemic. In October, economic output largely continued to grow. Industrial production had a strong boost from the automotive industry, which saw another sharp expansion. Most other industrial sectors also increased their output. New orders in the manufacturing sector even topped the level of Q4 2019 by approx. 3%. Other economic indicators are also pointing upwards, with October being the sixth consecutive month of export growth. The retail sector was also able to once again increase its turnover in October. Gainful activity and employment subject to social security contributions also grew, whereas unemployment decreased markedly in November.

Looking forward, however, the outlook is less bright. The ifo business climate softened in November and is now slightly negative, overall. The balance was tipped by the business expectations, which, like export expectations, are now considerably gloomier. The partial lockdown in force since the beginning of November and the additional measures adopted with a view to limiting social contacts mainly hit the hospitality sector and business in the fields of leisure and tourism. Now that a hard lockdown has been put in place, other sectors are also affected. The cautious export expectations chiefly reflect the force of the second pandemic wave that has hit a number of European countries. Altogether, it is likely that economic growth in Germany in Q4 will be much dampened.

For more information about the economic situation in December, please click here.

Latest press releases

Press releases

  • 17/04/2019 - Press release - Economic Situation and Cyclical Development

    Minister Altmaier: Slow period is over, but should serve as a warning: we need to keep improving the business environment.

    Open detail view
  • 30/01/2019 - Press release - Economic Situation and Cyclical Development

    Minister Altmaier: To develop the economy, we need to focus on stimulating growth and on technologies for the future

    Open detail view

Further information

Graph on the subject of Economic Development; Source: istockphoto.com/jxfzsy