According to preliminary calculations by the Federal Statistical Office (Destatis), price-adjusted gross domestic product (GDP) in 2023 was 0.3% lower than a year earlier. The calendar-adjusted decline in economic output was 0.1%. “Overall economic development faltered in Germany in 2023 in an environment that continues to be marked by multiple crises,” said Ruth Brand, President of the Federal Statistical Office, at a press conference in Berlin. High prices at all stages of the economic process put a damper on economic growth, she noted, adding that unfavourable financing conditions due to rising interest rates and weaker domestic and foreign demand had also taken their toll. According to Ms Brand, this meant that the German economy had stopped recovering from the severe slump in the coronavirus year of 2020. 

Most services sectors supported the economy

Destatis reported that gross value added in 2023 trended differently in the individual sectors of the economy. Economic output in production excluding construction was down significantly overall by 2.0%. This was largely due to much lower energy production. Manufacturing, which accounts for almost 85% of production (excluding construction), was also down in 2023 after price adjustment (‑0.4%). The automotive industry and other transport equipment made the primary positive contributions in this area. By contrast, production and value added in energy-intensive industries such as the chemical and metal industries fell once again, economic output in these sectors having already reacted particularly strongly to rising energy prices in 2022.

According to Destatis, in the construction sector, the increasingly deteriorating financing conditions, in particular, were making themselves felt, alongside persistently high construction costs and the shortage of skilled labour. Building construction was the sector primarily affected by this. By contrast, output in civil engineering and the finishing trades increased. Overall, the construction sector achieved a small increase of 0.2% in price-adjusted terms in 2023.

Most services sectors were able to expand their economic activities again on the year and supported the economy in 2023. However, the increase was weaker overall than in the two preceding years. “Information and communication” recorded the largest price-adjusted growth, at 2.6%, thus continuing its multi-year growth story, slowed down only in the first coronavirus year of 2020. “Public administration, education, human health” (+1.0%) and business service providers (+0.3%) likewise posted slight growth, according to Destatis. By contrast, price-adjusted gross value added in the combined “trade, transport and accommodation” sector declined by 1%. 

Private and government consumption expenditure down

According to Destatis, private consumption fell by 0.8% year-on-year in 2023 in price-adjusted terms in an environment of high consumer prices. Those areas in which prices either remained at the high level of the previous year or even rose further over the course of the year were affected the most. Accordingly, price-adjusted expenditure on durable goods such as furniture and household appliances dropped particularly sharply (-6.2%). In 2023, general government, too, reduced its price-adjusted consumption expenditure for the first time in nearly 20 years (‑1.7%). This was mainly due to the elimination of government-funded coronavirus response measures, such as vaccinations and compensation payments for unoccupied beds in hospitals. Government consumption supported economic output in the years from 2020 onwards through such measures.

Gross fixed capital formation in construction was reported by Destatis as being down by a price-adjusted 2.1% in 2023. This reflected not only the high construction prices but also the marked increase in lending rates, which were a drag on residential construction, in particular. Only the finishing trades made a positive contribution; this is likely to have been due, amongst other things, to surging demand for renovation work to improve energy efficiency. On the other hand, equipment – primarily investment in machines, equipment and vehicles – benefited from considerably more investment (after price adjustment) than in 2022 (+3.0%). This was mainly due to the increase in new commercial passenger car registrations, which was amplified by the “environmental bonus”, a subsidy programme for company-operated electric vehicles which was in force until August 2023. 

According to Destatis, subdued global economic activity and weak domestic demand in 2023 were also reflected in trade with non-residents – which declined despite falling prices. Imports (-3.0% after price adjustment) fell more sharply than exports (-1.8% after price adjustment). This resulted in a positive net trade contribution, which supported GDP. 

Labour market remains robust

Destatis announced that GDP in 2023 was generated by an average of 45.9 million persons in employment working in Germany. This was 0.7%, or 333 000, more people than in the previous year, and thus more than ever before in Germany. The increase in employment in 2023 was due in part to the immigration of foreign workers. In addition, Germany’s domestic labour force participation also increased. These positive effects outweighed the dampening effects of demographic change. In 2023, employment growth was concentrated almost exclusively in the services sectors. 

According to preliminary calculations by Destatis, government budgets closed with a deficit of €82.7 billion for 2023. This was around €14 billion less than in 2022 (€96.9 billion). Central government, in particular, succeeded in considerably reducing its net borrowing compared with the previous year.