Economic output in Germany increased again somewhat of late according to the Bundesbank’s Monthly Report. In the first quarter of 2024, seasonally adjusted real gross domestic product (GDP) rose by 0.2% on the quarter, according to the Federal Statistical Office’s flash estimate. In the last quarter of 2023, it had fallen substantially by 0.5%. 

Uptick in construction, industry and exports

Benefiting from favourable weather conditions, construction in particular picked up again recently. “Industrial output and exports [also] performed better than had been expected based on the weak demand,” the economists write. Mainly energy-intensive economic sectors such as the chemicals industry recorded a steep increase in output. “It may be that, after the heavy burdens caused by the surges in energy costs in the wake of Russia’s attack on Ukraine, a reversal is starting and ushering in a moderate recovery,” the Monthly Report goes on to say. However, other major sectors, such as mechanical engineering and the automotive industry, have seen declines in output, which means that a broad-based recovery in industry is yet to come. Private consumption likewise remained lacklustre in the first quarter. Consumers were unsettled despite the stable labour market and real income growth. By contrast, the services sector looks to have grown significantly, the report states.

Outlook is gradually brightening

“Economic output is expected to rise again slightly in the second quarter of 2024,” the economists write. They anticipate positive impetus from private consumption and a further recovery in services. In industry, energy-intensive sectors could see a moderate recovery. However, at present there is still no sign of a broad-based increase in new orders to constitute a major recovery. Brighter business expectations in the manufacturing sector are not likely to give a marked boost to production until the second half of the year. Demand remains very weak in construction as well. Overall, the underlying cyclical trend gradually appears to be gaining some momentum, the authors conclude.

Labour market still robust

According to the Monthly Report, “the German labour market was very stable in the first quarter of 2024, too.” After seasonal adjustment, employment rose slightly by 38,000 persons, or 0.1%, compared with the final quarter of 2023. 

Registered unemployment grew slightly by 24,000 persons in seasonally adjusted terms over the same period, with the unemployment rate up by 0.1 percentage point to 5.9%. According to the experts, leading indicators give no reason to expect any major change in the German labour market over the coming months. 

Strong wage growth expected to continue

Negotiated earnings rose steeply by 6.2% on the year in the first quarter. "Both permanent wage increases and large social contribution-exempt inflation compensation bonuses contributed to this considerable wage growth," the Bundesbank writes. According to the Monthly Report, the latest collective wage agreements point to continued strong wage growth: in annualised terms, wage growth ranges from 3.0% in temporary work to up to 10.6% in logistics and freight forwarding. Trade unions’ wage demands currently range from 7% to 15% over a term of 12 months and are thus still at a high level. Although inflation has declined considerably since its peak in 2022, the economists write that trade unions remain aware of the accumulated real wage losses of the past three years. 

Only a small decline in inflation

In the first quarter of 2024, consumer prices as measured by the Harmonised Index of Consumer Prices (HICP) edged up slightly again by a seasonally adjusted 0.8% on the quarter. The economists attribute the increase mainly to price inflation for services at the beginning of the year and the higher prices of non-energy industrial goods. By contrast, food prices remained virtually unchanged, and energy prices even dropped again. Looking at the year-on-year figure, the inflation rate fell only slightly from 3.0% in the final quarter of 2023 to 2.7%. At 3.4%, core inflation (HICP excluding energy and food) remained markedly above the headline rate in the first quarter. The Bundesbank expects inflation to rise again in May and to fluctuate at a slightly higher level over the next few months. This is predominantly due to base effects, with one example being in local and regional public transport owing to the introduction of the “Deutschlandticket” in May 2023.