Based on an initial early estimate released by the Federal Statistical Office, seasonally adjusted German economic output declined by 0.1 % in the last quarter of 2024. It is also unlikely that the German economy will manage to escape the period of stagnation in the first quarter of 2025.

The situation in industry, especially, remained poor at the end of 2024, the economists write in the latest Monthly Report. In particular, fewer consumer goods were produced in October and November. Capital goods production increased, however, even though significantly fewer passenger cars were manufactured. Surveys conducted by the ifo Institute suggest that the situation in industry is likely to remain difficult. They show that short-term production plans and export expectations have deteriorated recently. According to the economists, industry is under high pressure to adapt to changing structural conditions.

Divergent developments in construction 

According to the latest Monthly Report, there are two different developments in construction: while output in building construction, which includes residential buildings, declined, it increased in civil engineering. Civil engineering includes the construction of roads and railway lines. Owing to higher financing costs and construction prices as well as the strong income losses for households, building construction has already been in decline since 2022. In the civil engineering sector, new orders in October significantly exceeded the level at the end of 2021, reflecting investment in general infrastructure in particular. Overall, construction output increased recently, but the situation remains difficult, the economists write. According to surveys conducted by the ifo Institute, around 39 % of firms in the main construction sector were affected by a lack of orders in the fourth quarter of 2024.

Labour market remains fairly stable

Employment in Germany has recently developed more favourably than the Bundesbank’s economists had expected in their Forecast for Germany last December. The Federal Statistical Office reported a slight seasonally adjusted increase in employment for both October (+12,000 persons) and November (+23,000 persons) in its estimate. However, the economists believe that this is not an indication of a positive trend reversal in the future. Signals from leading indicators deteriorated further.

Inflation rate remains elevated but likely to decline soon

The inflation rate in Germany rose significantly last December. The Harmonised Index of Consumer Prices increased by 0.3 % on the month in seasonally adjusted terms, after prices had fallen slightly in the previous month. Prices for services and non-energy industrial goods went up markedly. Food became slightly more expensive. By contrast, energy prices remained virtually unchanged on the month. Looking at the year-on-year figure, headline inflation rose from 2.4 % to 2.8 %. Nevertheless, the disinflation process continued in 2024, the report states. The previously still exceptionally high inflation rate dropped significantly on average over the past year. In early 2025, inflation is likely to remain high initially. This is due to the further increase in the carbon price on fossil fuels as well as higher prices for the “Deutschlandticket” and for private health insurance. The inflation rate is then likely to come back down in the coming months.