Growth curve with pen symbolizes the economic situation; source:


  • The German economy is continuing to recover. However, national and international pandemic activity is still hampering this recovery process. After a strong upturn in May and June, the economy went on to recover at a more moderate pace.
  • While August saw an interruption, largely due to the vehicles and vehicle parts sector, to the recovery of industrial output, the current outlook remains bright inasmuch as new orders as well as corporate sentiment have recently been showing significant improvements.
  • Consumer spending is also recovering. Since May, retail turnover (excluding vehicles) has been higher than before the crisis. Car sales have picked up markedly and are expected to recover further. The indicators of sentiment are pointing to a rise in consumer spending in the second half of the year.
  • The coronavirus pandemic continues to have a strong impact on the labour market, but the situation is slightly improving. Unemployment declined further in September and short-time employment is becoming less important every month. In August, gainful activity increased for the second month in a row. Leading indicators are suggesting further improvements.

Overall situation: sustained economic recovery

The German economy is gradually recovering. After a powerful rebound in May and June that followed in the wake of the hard lockdown, the recovery process has now lost some of its momentum. The coronavirus pandemic continues to impact the behaviour of consumers and investors alike. This is especially true of economic sectors in which social contacts play a critical role. In spite of this overall environment and notwithstanding a worrying level of pandemic activity, the current economic indicators are pointing to a continued economic recovery, supported by the far-reaching economic stimulus measures taken by the Federal Government. In fact, the impressive upturn during the third quarter is likely to translate into by far the highest quarterly rate of growth ever registered. As far as the fourth quarter is concerned, the indicators are suggesting a continued, but slower, recovery process. In their current joint economic forecast, leading economic research institutes are expecting GDP to decline by 5.4% over the course of the year. By contrast, the interim projection put forward by the Federal Government in early September had predicted a 5.8% decline. [1]

The global economy continues on its path to recovery

The world economy is still suffering from the impact of the pandemic. At a somewhat slower pace, it has managed, however, to continue on the road to recovery. Global industrial output increased in July for the third month in a row, but is still almost 4.5% below the pre-year level. World trade expanded by 4.8% month on month, but remained around 6.5% below its pre-year level. The indicators of market sentiment, however, continue to give grounds for optimism. At 52.1, J. P. Morgan / IHS Markit’s purchasing managers’ index was slightly down in September due to a somewhat less confident service sector, but still remained far above its growth threshold. The World Trade Organisation (WTO) is now expecting global trade to drop by 9.2% in 2020 - a decline that would be far less severe than feared earlier this year. Likewise, the International Monetary Fund has announced a slight upward revision of its prediction of global GDP and world trade.

A long road ahead for German foreign trade

August witnessed yet another rise in exports of goods and services. Having increased throughout May, June and July, exports rose again by 2.2% month on month in seasonally adjusted and nominal terms. This is mirrored in the two-month comparison of July/August versus May/June, which reveals a considerable increase of 11.6%. Likewise, imports of goods and services recovered by an impressive 4.2% in August. In the two-month comparison, imports rose by 8.5%.

German companies are increasingly confident about the further outlook. On balance, the ifo export expectations for the manufacturing sector were even more markedly positive than in August. Foreign orders registered another considerable increase of 6.5%, surpassing the pre-crisis level of Q4/2019.

On the whole, the outlook for German foreign trade is positive, but still exposed to risks. As economic activity recovers in many countries across the world, German foreign trade is likely to increase further. However, the global economy is still exposed to high pandemic-related risks. At a global level, the pandemic is showing no signs of retreating. Even if world trade does not suffer any setbacks as it picks up again, it will take quite some time for German foreign trade to recover.

Industrial activity slowed down by works holidays in the automotive sector

The recovery of the goods-producing industry came to a halt in August. Output fell by 0.2% month on month in seasonally adjusted terms. The industrial sector witnessed a 0.7% decline. This decrease in output was largely due to factory shutdowns as a result of works holidays in the pivotal vehicles and vehicle parts sector, where output declined by 12.5% after an initial powerful recovery. According to industrial associations, however, September is likely to register a significant increase in car production. August also saw a decline of 1.8% in mechanical engineering due to weak foreign demand, slowing down the overall recovery process. At the same time, however, overall industrial output attained roughly 88% of its pre-crisis level of February 2020. Taken together, industrial output in July and August was more than 10 percentage points higher than the average value for the second quarter. The construction sector saw a 0.3% decline in output in August. In the energy sector, by contrast, output rose markedly by 6.7%. The two-month comparison for July/August compared with May/June showed a 5.8% expansion in the goods-producing sector. In the same period, industrial output increased by 8.1%. The construction sector registered a 3.4% decline, whereas the energy sector witnessed a 5.0% increase.

After registering a month-on-month increase of 3.3% in July, new manufacturing orders rose even further in August, by 4.5%. Demand for intermediate, capital and consumer goods rose by similar amounts. The surge in order activity was largely driven by a significant increase in orders from the eurozone (+14.6%). Domestic orders and orders from the non-eurozone rose only slightly by 1.7% and 1.5% respectively. This is mirrored in the two-month comparison of July/August versus May/June, which reveals an 18.9% increase in order activity. Following the relaxation of the lockdown, industrial activity is continuing to recover. In August, new orders were already close to their average level for Q4/2019. However, this was also due to the recent effects of pent-up demand as regards foreign orders.

Although the ongoing recovery process will inevitably lose momentum, leading indicators of sentiment, including the ifo business climate and IHS Markit/BME’s purchasing managers’ index, are pointing to a continued recovery of industrial activity. The upward trend is likely to continue in the coming months.

Retail trade makes further gains after strong upswing in May

Since May, the indicators for retail trade have by far exceeded pre-crisis levels. The upturn in retail turnover (excluding vehicles) that has been witnessed since May continued throughout August, when an increase of 3.1% was recorded. Trade in vehicles continued to rise by 22.6% in July, exceeding its February pre-crisis level for the first time. New car registrations by private owners were down in September (-3.5%; August: -7.2%), but July had recorded a rapid increase of 87.4%. According to the latest available figures, the number of new car registrations by private owners remained above the level of 100,000 cars per month.

The leading indicators are suggesting a continued recovery. The ifo business climate in the retail trade showed a further slight improvement in September. Overall, the sentiment is positive. Likewise, the GfK consumer climate index registers a slight improvement for October. In September, the temporary cuts in value-added tax continued to have a dampening effect on consumer prices; to a considerable extent, the cuts are being passed on to the consumers. In comparison with August, prices fell by a further 0.2%, which was largely due to trends in services and particularly package travel. The rate of inflation, i.e. the year-on-year development of prices, stood at -0.2% in September (August: 0.0%). A lower inflation rate had last been reported in January 2015. At the same time, prices for energy products fell by 7.1%. The inflation rate for foodstuffs declined somewhat further (+0.6%). As far as services are concerned, the rise in prices remained at 1.0%. The core inflation rate (excluding energy and foodstuffs) stood at +0.5% in September, compared to +0.7% in the previous month.

Despite initial improvements, coronavirus continues to affect the labour market

The summer quarter witnessed the first improvements in the labour market. Employment showed a slight increase for the second consecutive month. Likewise, unemployment and underemployment were down somewhat, with short-time employment flattening out. Seasonally adjusted employment rose by 19,000 persons in August. However, it will still take a few quarters to reach the level prior to the outbreak of the coronavirus pandemic. The number of vacancies on offer and thus the demand for labour is only slowly picking up. As in the previous month, the seasonally adjusted number of persons working in jobs subject to social security contributions showed a small increase of 5,000. It is still nearly 400,000 short of the record level attained in February before the outbreak of the pandemic. The downward trend in short-time employment is continuing. In July, the number of short-time workers stood at 4.2 million, down from June by almost 400,000. Registered unemployment dropped by 8,000 in seasonally adjusted terms in September. According to the unadjusted figures, unemployment fell to 2.85 million people. The year-on-year change is down to +613,000 people. The survey-based leading indicators from the Institute for Labour Market Research, ifo and the Federal Employment Agency have become more positive, suggesting slight improvements in the labour market.


[1] The report is based on statistical data that were available as of 14 October 2020. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.