Wachstumskurve mit Kugelschreiber symbolisiert die wirtschaftliche Lage.

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  • According to early reports by the Federal Statistical Office, the second quarter of 2021 saw a 1.5% increase in GDP. [1] The latest figures show a divided picture in the economic situation: while service sectors continue to benefit from the relaxations of pandemic-related restrictions, industrial activity is hampered by existing supply bottlenecks. However, the underlying positive momentum of the overall economy continues as economic recovery gains pace.
  • Industrial output continued to decrease in June, which is largely due to shortages in the supply of semiconductors in the automotive industry. In the construction sector, the slowdown was the result of a timber shortage which, however, will likely be overcome soon. On the whole, the outlook for the industrial sector remains cautiously optimistic given the continuous high level of demand. Moreover, the outlook for exports continues to be deemed very favourable by companies.
  • Retail sales continued to increase in June. The outlook for the coming months, however, showed a slight deterioration in view of the current rise in infections.
  • The rate of inflation registered a sudden rise between June and July. This was mainly the result of a base effect due to the temporary reduction in VAT rates one year before. Since the beginning of the year, in fact, the inflation rate had been rising considerably as a result of further special factors (commodity prices, carbon pricing). At the beginning of 2022, however, the inflation rate is likely to fall markedly again as the special factors cease to exert their influence.
  • The development of the labour market remains favourable as it recovers from the third wave of the pandemic. Unemployment fell sharply in July in seasonally adjusted terms; gainful employment continued to pick up in June in seasonally adjusted terms. Also, short-time work continued to fall in May, with another significant decrease expected for June.
  • In spite of the notification requirement, restored to full application in May, there have been no signs of a wave of insolvencies. In fact, the number of regular insolvencies even registered a slight decrease in the summer. Although a rise in company insolvencies still cannot be ruled out for the rest of the year, it would probably be fairly moderate – if at all noticeable.


The German economy is showing a divided picture: while service sectors continue to benefit from moderate infection rates, the industrial sector has for the third consecutive month seen a decline in production, largely driven by persistent shortages in the supply of intermediate products. On the whole, however, the German economy is continuing on the road to recovery.
Within the manufacturing sector, the automotive and construction industries in particular are affected by supply bottlenecks. While the timber shortage is improving to some degree, supply bottlenecks are expected to persist for other construction materials and for semiconductors, which are of key importance to the automotive sector. Consequently, the latest decline in manufacturing output is once again due to supply-side issues, rather than being the result of weak demand. This is reflected clearly in the development of new manufacturing orders, which, after taking a breather in May, went on to rise markedly in June, continuing the upward trend begun at the start of the year. In June, German exports of goods increased for the fourteenth month in a row. They are now well above the pre-crisis level (Q4 2019 average) attained in March. Sentiment among German exporters also continues to be very favourable, with export expectations stabilising at a high level in July. Global industrial output and global trade saw a similar development, remaining at a high level despite a slight decline in May. The continued recovery of the service sector, which had begun in June, accounted for a significantly improved assessment of the economic situation in almost all individual sectors. Retail sales picked up strongly in June. In July, the GfK consumer sentiment index remained at the level of the previous month. These positive developments are also mirrored by the labour market. Unemployment fell again, and short-time work was reduced further. According to early reports by the Federal Statistical Office, these developments led to an overall GDP increase of 1.5% in the second quarter. In fact, the economic recovery is likely to gain even further momentum in the third quarter. However, the risk posed by potential new virus variants and their influence on infection rates remains a major source of uncertainty for the further development of the economy.


The upswing in global economic activity has recently been sluggish. In May, global industrial output fell by 1.1% month on month. Thus, global output dropped to the level seen at the start of the year, but it was still well above pre-crisis levels. In May, the global trade volume, while remaining at a high level, fell slightly for the second time in a row ( 0.3%). The sentiment indicators have also worsened somewhat. In July, the J.P. Morgan/IHS Markit composite purchasing managers’ index fell by 0.9 points to reach 55.7 points, which is still well above the growth threshold of 50 points. The mood in industry showed only a slight deterioration (55.4 points) despite persisting shortages in the supply of key intermediate goods, whereas sentiment among service providers was far more subdued than before (56.3 points) – probably in view of the increasing spread of the more contagious COVID-19 delta variant. Despite the recent downturn, the second quarter of 2021 is likely to register a further rise in global economic output, driven by a surge in economic activity in large economies like China, the United States and the EU. Previously, global GDP – although well on the road to recovery – had still fallen marginally short of pre-crisis levels.


German foreign trade has recently lost some momentum. In June, the value of goods and services exports fell by 0.4% month on month, adjusted for seasonal variations and on a nominal basis (May: +0.8%, revised upwards). This was largely due to a downturn in the service sector. However, the quarterly figure still showed a significant increase of 2.6%. Imports, which had grown by as much as 3.7% in May (revised upwards), went on to rise by another 1.2%. In the quarter-to-quarter comparison, imports grew by an impressive 6.9%.

At national level, the slight slowdown in global economic recovery is also reflected in the leading indicators for foreign trade and investment. New foreign orders, which had dropped by 6.0% in May, showed only a slight month-on-month increase of 0.4% in June. In July, the ifo export expectations for the manufacturing sector, although still well above average, painted a somewhat less confident picture than before. This breather notwithstanding, the outlook for German foreign trade remains positive. A major boost is being provided by the favourable economic development in important sales markets like Asia and the United States.


Manufacturing output in June fell by another 1.3% compared with the preceding month. Industrial output decreased by a slight 0.9%, following a decline of 0.7% in May and 0.4% in April. Construction output registered a drop of 2.6%, but still remains at a high level.

In the quarter-to-quarter comparison, output in the manufacturing sector saw a slight decrease of 0.6% in the second quarter. While industrial output fell by 1.3%, construction output recovered from its weak first quarter, picking up by 2.4%. Within industry, the important sector of cars and car parts reported another sharp drop of 11.2% compared with the previous quarter. Output in the mechanical engineering sector, which is of similar importance, was down by 1.3% from Q1.

New manufacturing orders saw a month-on-month increase of 4.1% in June. In the quarter-to-quarter comparison, new orders rose by 2.8%. Following a decline in new orders in May (-3.2%), June saw a continuation of the upward trend in demand set at the beginning of the year. This was due to a surge in domestic orders which was driven by strong growth in the fields of ICT and optics, as well as non-automotive vehicle construction. New orders also rose in the automotive and mechanical engineering sectors. An increase in foreign orders from the eurozone (+1.3%) compensated for a mild reduction in orders from outside the eurozone (-0.2%).

After a flat development in Q1, the second quarter saw a decline in industrial output. This was due to bottlenecks in the supply of semiconductors, particularly in the automotive sector, which continue to cause difficulties today. In the construction sector, the slowdown was the result of a timber shortage which, however, will likely be overcome soon. Construction output remains at a high level anyway. On the whole, the outlook for the industrial sector remains cautiously optimistic given the continuous high level of demand. While the assessment provided by ifo’s business climate index continued to improve as low infection rates allowed large parts of the economy to open up again, the outlook for the coming six months was more pessimistic. As far as exports are concerned, however, the outlook continues to be deemed favourable by companies.


Retail sales (excluding cars) have recently been picking up further. Following a 4.6% increase in May, they rose by another 4.5% in June. This positive trend is likely to be the result of the relaxations that were made possible by the more moderate level of infections seen in those months. Sales in the non-food retail sector recently saw a substantial increase of 8.7%. Trade in textiles, clothing, shoes and leather goods registered another massive surge (+77.3%), surpassing the pre-crisis level of February 2020 for the first time since the outbreak of the COVID-19 pandemic (+5.1%). Turnover in the food retail sector recorded a month-on-month increase of 4.6% in June 2021. While e-commerce and mail order services saw turnover fall by 8.4%, the figure was still well above the pre-crisis level (+37.0%). New vehicle registrations by private owners saw another slight increase in July (+2.4%). Whilst the number of new registrations still falls considerably short of the sales figures seen in the second half of 2020 when VAT rates were temporarily lowered, they are still well above the lowest level recorded during the crisis, which was in April 2020.

Ifo’s business expectations for retail trade, which had previously been positive for the first time in a while, returned to a slightly negative level on balance in July. Following a noticeable improvement in July, the GfK consumer climate index is expected to stagnate in August. The latest rise in infection rates and the waning momentum of the vaccination campaign are cited as reasons for this.

Consumer prices, which had seen a growth rate of 0.4% in June, went on to rise noticeably by another 0.9% month on month in July. The inflation rate, the year-on-year development of prices, rose by 1.5 percentage points to 3.8% in July. This sudden surge towards the middle of the year is the result of a base effect due to the temporary reduction in VAT rates one year before. This is also why the inflation rate remained negative for almost the entire second half of 2020. Now, however, the current consumer prices – which are based on the regular VAT rates – are being compared with prices a year ago when reduced VAT rates applied. In fact, the early months of the year also saw a considerable rise in the inflation rate. Major reasons for this include the recovery of import and commodity prices and the introduction of carbon pricing for the transport sector and heating in buildings. At the turn of the year, once these special effects cease to exert their influence, the upward trend in consumer prices is likely to weaken considerably in year-on-year terms. As there are currently no indications of a wage-price spiral – which could cause a permanent increase in inflation – the inflation rate is currently not expected to rise indefinitely. The core inflation rate (excluding energy and food) also increased noticeably in July, reaching +2.7% (June: +1.7%). Energy prices rose by a solid 11.6% in year-on-year terms (June: +9.4%).


The labour market was in excellent shape in July, creating a positive outlook for the months to come. Following the gradual relaxations of the measures undertaken to combat the coronavirus crisis, the labour market is increasingly recovering from the third wave of the pandemic. Unemployment and underemployment fell sharply in July (in seasonally adjusted terms), decreasing by 91,000 persons and 60,000 persons respectively. According to the unadjusted figures, unemployment fell by 24,000 to now stand at 2.59 million people. Compared with the previous year, the number of unemployed persons was down by 320,000. In June, gainful employment saw another solid increase. Up by 76,000 persons (seasonally adjusted), the figure was now well above the level of the preceding year (+162,000 persons). The demand for labour remains high: in May, employment subject to social security contributions rose by another 31,000 persons (seasonally adjusted). Extrapolations show that 2.2 million people were in short-time work in May – a lot fewer than in April (2.5 million). Short-time work notifications indicate that the use of the short-time work scheme will continue to slow. Although the survey-based leading indicators by the Institute for Employment Research and ifo showed a slight downward trend in July, they still remain at a very high level. In the service sector, the willingness of companies to recruit new staff, which had been very strong the month before, saw a setback. In industry, however, the willingness to recruit surged upwards. Commerce remains optimistic as well.


The number of insolvencies went down slightly in the summer. For June and for July, the Federal Statistical Office reported a month-on-month reduction of 2.1% and 0.1% respectively in the number of companies filing for regular insolvency. The insolvency situation thus remains calm; only the first quarter registered a temporary increase in insolvencies following the shortening of the residual debt discharge procedure. The number of business insolvencies dropped by 16% in May, remaining well below the level of the preceding year (-26%). On the whole, it is still not possible to rule out a slight rise in company insolvencies for the rest of the year; however, it would probably be fairly moderate – if at all noticeable.


[1] Press release by the Federal Statistical Office of 30 July 2021. The report is based on data that were available as of 12 August 2021. 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.