Contrary to expectations, German economic output fell slightly in the second quarter of 2024, the Bundesbank writes in its latest Monthly Report. Real gross domestic product (GDP) recorded a quarter-on-quarter decline of 0.1% on a seasonally adjusted basis. Despite stabilising demand, industrial output in the second quarter resumed its downward trend, which had been interrupted in the first quarter. According to the economists, production of intermediate goods, for example, contracted again, with the manufacture of electrical equipment such as electric motors and generators falling in particular. The continued weakness of capital goods production was mainly attributable to mechanical engineering. By contrast, manufacturers of motor vehicles and motor vehicle parts recorded an increase in production for the first time in more than a year.

Following a slight expansion in the previous quarter, construction output dropped again in the second quarter, according to the report. This was partly due to output normalising in the wake of favourable weather conditions in the first quarter. Without the additional boost from better than average weather conditions, construction activity declined again in the second quarter. Much like the industrial sector, construction is also suffering from weak demand. Averaged over April and May, order intake in the main construction sector was up slightly on the previous quarter, but remained far below the level recorded in the first quarter of 2022.

In the services sector, the moderate upward trend from the previous quarter may have continued. Although monthly figures for services production are not yet available for the second quarter, the relevant sentiment indicators provided by the ifo Institute and S&P Global point to positive developments. Private consumption probably made only a limited contributed to this, given that the economists found that consumers had a continued higher propensity to save. Although income expectations did rise noticeably in the second quarter, the propensity to purchase barely increased as a result, they note.

Little growth in the labour market

The labour market remained relatively stable despite the sluggish economic recovery. Employment rose moderately in the second quarter. At the same time, however, immigration also led to an increase in the labour force and registered unemployment went up. The unemployment rate reached 6.0% at the end of the second quarter, putting it 0.1 percentage point higher than the previous quarter’s average. The persistent weakness of the economy was also reflected in a moderate increase in short-time work and a slow decline in job vacancies. The authors do not expect much change in this development in the near future.

Inflation rate slightly higher

As in the first quarter, consumer prices (HICP) went up markedly in the second quarter, with a seasonally adjusted quarter-on-quarter increase of 0.8%, the Monthly Report states. While price inflation for non-energy industrial goods fizzled out, the prices of some services rose substantially, for example in the care sector. Rents once again went up more sharply than the long-term average.

From today’s perspective, the authors expect inflation rates to temporarily return to slightly higher levels towards the end of the year. For one thing, the previously negative inflation rates for energy will then turn positive. For another, the currently depressed profit margins for refined petroleum products could gradually creep up again.

Bundesbank expects economic output to expand slightly

The Bundesbank’s economists expect the weakness in construction and industry (the latter of which is mainly due to weak foreign demand) to persist. However, private consumption and services are likely to see growth in the third quarter, according to the Monthly Report. As households’ real incomes continue to rise, consumer spending should pick up, if only hesitantly. The GfK’s consumer climate index in July, for instance, was above the average of the previous quarter, thus continuing its upward trend of recent months.