Commentaries: Economic conditions and Public finances

1 Economic conditions

1.1 Muted but positive start for the Germany economy in the new quarter

The German economy is likely to pick up slightly in the first quarter of 2025. Both industry and construction increased output in January, with one-off effects likely to have played a significant part. The rise in industrial output followed a weak year-end. The timing of the December public holidays in conjunction with weak industrial activity probably played a role here. In the construction sector, the favourable weather conditions provided a slight boost in January.

There were fewer ice days than usual in January. According to the Deutscher Wetterdienst (2025), the weather in January was also very mild. For details on the impact of weather influences on economic activity, see Deutsche Bundesbank (2025).

However, the basic tendency in industry in particular remains weak in the first quarter. For the time being, the slight recovery in foreign demand for German industrial products has not continued at the beginning of the year. This highlights the persistently difficult competitive position. In addition, investment is still currently facing headwinds. The high degree of uncertainty surrounding economic and political conditions is dampening the propensity to invest, and low industrial capacity utilisation is weighing on investment. Private consumption did not provide any stimulus to growth at the beginning of the year. Consumers were unsettled by the cooling labour market and concerns about job losses, amongst other things. They were reluctant to make use of the additional scope for spending on consumption that had been created last year by the sharp rise in wages. The services sector as a whole, however, is likely to make a slightly positive contribution to growth in the first quarter, even without impetus from private consumption. Overall, economic output is thus likely to increase slightly in the first quarter, although the underlying cyclical trend remains weak.

The future outlook for the German economy is particularly uncertain at present. Compared with expectations from the last Forecast for Germany,

See Deutsche Bundesbank (2024).

the restrictive and uncertain trade policy of the United States could dampen exports more strongly, especially if more extensive tariffs against the

were to be implemented. At the same time, the considerably more expansionary stance of German fiscal policy, which was envisaged in the results of the preliminary coalition talks of the parties negotiating the formation of a new government, could give a stronger boost to economic output in the coming years.

1.2 Industry remains weak in the underlying tendency

German industrial output continues its weak underlying tendency on the back of short-term positive one-off effects. After a very weak December,

Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar variations, provided they can be verified and quantified.

seasonally adjusted industrial output rose again in January. It was also up on the previous quarter. The weakness in production in December could also have been partly attributable to workers at firms taking longer holidays, due to the timing of public holidays amongst other factors. This triggered a positive countermovement in January. The fact that the rebound effect was observed across sectors would suggest this is the case. The increase in output affected all categories of goods, but capital goods benefited the least. There are signs of a continued downward trend, especially in the automotive industry. Despite the increase, output in January did not exceed the level of the fourth quarter of 2024. For February, the German Association of the Automotive Industry also reported a decline in the number of passenger cars produced.

The trend of recovery in foreign demand for German industrial goods suffered a setback. In January, industrial orders were down significantly on the month and the quarter. The fact that there were comparatively few large orders was not the only factor here. New orders excluding volatile large orders likewise decreased and were below the fourth quarter of 2024. This was mainly due to the decline in demand from abroad, which had previously risen for three consecutive quarters. There are so far hardly any signs of stronger forward effects owing to the threat of US tariffs on EU goods either.

Exports to the United States even declined in January compared with the previous quarter. By contrast, the export expectations captured by the

ifo

Institute increased in February overall. However,

President Trump’s announcement that, from April onwards, he intends to impose a 25% tariff on

goods was announced only after these indicators had been collected.

By contrast, domestic demand provided some support, posting a slight increase on the quarter. The still weak order situation overall continues to shape companies’ short-term outlook. According to the

ifo

Institute, production plans in the manufacturing sector improved slightly in February, but they remained pessimistic. The

Global Purchasing Managers’ Index

(

PMI

)

for the manufacturing sector made up ground in January and February but it remained below the expansion threshold.

1.3 No impetus from private consumption but some support from service providers

Consumers are still restrained. This is indicated, amongst other things, by real retail sales at the beginning of the year. Although they rose slightly in January, they remained below the level of the previous quarter. According to the ifo

survey, both the assessment of the situation and expectations in the retail sector improved in February. They remained pessimistic, however. Real sales in the hotel and restaurant sector increased in January, but the two

ifo

indicators for this industry deteriorated in February. Furthermore, households again purchased fewer cars at the beginning of the year. According to data from the German Association of the Automotive Industry, new passenger car registrations fell on average in January and February compared with the previous quarter. This suggests that it is unlikely private consumption will increase any more at first, even though households’ scope for spending was higher last year as a result of the sharp rise in wages.

Even without impetus from private consumption, there might be some support from service providers in the current quarter. According to ifo

Institute surveys, firms in most of the services sectors perceived the situation to be somewhat more favourable on average in January and February than in the fourth quarter of 2024. This is particularly true of companies in real estate and other administrative services. Averaged across January and February,

Global Purchasing Managers’ Index

(

PMI

)

for the entire services sector also rose compared with the previous quarter. It was also above the expansion threshold but below its long-term average, which suggests positive but subdued growth.

1.4 Labour market remains stable, outlook again gloomier

Employment developments have recently been less unfavourable than expected in the December 2024 Forecast for Germany. After a slight recovery in the autumn months, total employment declined again at the beginning of the year, but only to a small extent. The Federal Statistical Office reported a decrease of 11,000 employees in January in seasonally adjusted terms. The decline is mainly attributable to the downward trend in self-employment, but also to fewer persons working exclusively in low-paid part-time jobs. By contrast, employment subject to social security contributions remained stable to slightly positive until recently. However, the current estimates only extend to December 2024. Unfavourable employment developments subsequently resumed in the temporary employment sector, which often serves as an adjustment reserve in industry, and in the manufacturing sector itself. There were also fewer jobs filled in the trade sector. This is mainly offset by the rise in jobs in several services sectors. In addition to a number of largely publicly financed sectors, these include business-related services, transport and logistics, as well as energy and water supply. Short-time work stabilised again following the increase at the start of the fourth quarter. The Federal Employment Agency has revised its current projections downwards somewhat.

Nevertheless, the outlook deteriorated further, implying that the labour market is likely to continue to cool down in the near term. The ifo

employment barometer, which calculates staff planning for the industrial sector over the next three months, fell again in February, dashing hopes of a bottoming out. Plans for job cuts were still predominant, especially in the manufacturing and trade sectors. The construction sector, too, has now fallen more sharply into negative territory. The latest evaluation provided by the employment barometer of the

IAB

which looks at all the sectors, departed from the positive predictive range. It shows that employment is likely to remain broadly stable for the time being, however. The already weak inflow of new vacancies reported to the Federal Employment Agency fell again. By contrast, the stock of

vacancies reported to the Federal Employment Agency has continued to increase by historical standards despite a long downturn.

This is due to the considerable need for employees to be replaced due to retirement and the very long process of filling vacant positions.

Unemployment rose minimally in February. After seasonal adjustment, around 2.89 million people were registered as unemployed, 5,000 more than in January. The unemployment rate held steady at 6.2% due to rounding. The outflow rate from unemployment into employment is still very low. At the same time, the risk of moving from employment into unemployment has been increasing for some time now. However, the probability of dismissal remains low in a long-term comparison. Registered unemployment could rise more significantly again in the coming months. The IAB

unemployment barometer continued to decline in February and is at its lowest level since mid-2020.

1.5 Energy commodity prices markedly lower recently

Energy commodity prices declined markedly of late. Gas, in particular, has become significantly cheaper in recent weeks. As this report went to press, one megawatt hour of gas cost €41 in Europe, which was around 15% less than in January. This was mainly due to a certain relaxation of European gas storage requirements, speculation about higher volumes of Russian gas supplies and improved weather conditions. Crude oil prices also fell markedly over the same period. This was primarily attributable to demand concerns related to global trade disputes and the decision by some OPEC

countries and their partners to expand their production from April onwards.

1.6 Inflation down slightly to 2.6% in February

Price developments at the upstream stages of the economy were uneven. Import prices were up very significantly in January compared with the previous month. This was the case for both energy and other goods. By contrast, prices fell slightly in domestic industrial sales. Excluding energy, producer prices remained unchanged. Compared with the previous year, however, prices for imports rose by 3.1% and prices in domestic industrial sales were up by 0.5%.

The inflation rate was somewhat lower in February. The Harmonised Index of Consumer Prices (HICP

)

increased in February by a seasonally adjusted 0.2% on the month, after 0.3% in January. Compared with the previous month, prices for services rose less sharply in the public sector, as the unusually strong price increases in hospital services recently came to an end in January. However, prices of services that are more market-based continued to go up slightly. Food prices rose perceptibly after having become significantly cheaper in January. Energy prices rose moderately. By contrast, other non-energy industrial goods became somewhat cheaper. This was only partly due to clothing, whose prices usually fluctuate strongly. Annual headline inflation dropped slightly to 2.6%.

The annual rate of inflation according to the national Consumer Price Index

(

CPI

)

likewise remained at 2.3%.

Core inflation excluding energy and food likewise decreased slightly from 3.6% to 3.1%.

For both the headline

HICP

rate and the core rate, the annual update of expenditure weights pushed up the figures, as was the case in January.

Inflation is expected to come down slightly in the coming months. This is attributable primarily to services. Inflation is slowly easing there from a high level, as the adjustment of prices to the previously sharp rise in costs has probably gradually come to an end. The decline in energy commodity prices is also likely to have provided relief. By contrast, imports of non-energy goods are exerting upward pressure.

2 Public finances

2.1 Statutory health insurance scheme

2.1.1 Outturn in 2024

The statutory health insurance (SHI

)

scheme (comprising the health insurance institutions and the health fund) posted a high deficit of €10 billion in 2024, according to preliminary figures.

The deficit was €2½ billion higher than assumed by the group of

SHI

estimators in autumn 2024. This was due to higher spending on benefits (up 8% in total compared with 2023). The deficit almost doubled on the year. The depletion of reserves thus significantly exceeded the politically intended figure.

At just over €6 billion, the health insurance institutions accounted for the majority of the deficit. At the end of the year, their reserves stood at €2 billion, and were thus well below the statutory minimum (just over €5 billion). The health fund closed the year with a deficit of almost €4 billion: a deficit had been expected, as reserves of just over €3 billion were earmarked for limiting the rise in the contribution rate. At the end of the year, the fund’s reserves amounted to slightly more than €5½ billion (lower limit: just over €4½ billion).

**Table 1.1: Statutory health insurance scheme: overview of finances for the scheme as a whole**
€ billion
Revenue			Expenditure
Item	2023¹	2024²	Item	2023¹	2024²
Health fund (HF )
Contributions³	252.3	266.5	Transfers to HIIs ⁴	299.6	314.9
Supplementary contributions	25.3	30.5	Administration	0.1	0.1
Central government grants including crisis-related funds	21.8	15.4	Crisis-related measures	5.3	0.9
Capital levy	2.5	-	Other expenditure⁵	0.4	0.4
	0.1	0.1
Deficit	3.3	3.7	Surplus	-	-
Total	305.3	316.2	Total	305.3	316.2
Health insurance institutions (HIIs )
Transfers from HF ⁴	299.6	314.9	Spending on benefits	287.9	311.1
Other contributions	1.1	1.2	Administration	12.6	12.7
Central government grants to AHIIs ⁶	0.1	0.1	Other expenditure⁵	3.4	3.1
Other revenue⁷	3.7	4.5	Capital levy	2.5	-
Deficit	1.9	6.2	Surplus	-	-
Total	306.4	326.8	Total	306.4	326.8
Statutory health insurance (SHI ) scheme
Contributions⁸	278.7	298.2	Spending on benefits	287.9	311.1
Central government grants including crisis-related funds	21.9	15.5	Administration	12.7	12.7
			Crisis-related measures	5.3	0.9
Other revenue	3.8	4.5	Other expenditure	3.8	3.4
Capital levy	2.5	-	Capital levy	2.5	-
Deficit	5.2	10.0	Surplus		-
Total	312.1	328.2	Total	312.1	328.2
1 Final annual figures (KJ1 ). 2 Preliminary quarterly figures (KV45 ). 3 Excluding contributions to the agricultural health insurance institutions. 4 In 2023, including additional funds stemming from the capital levy that are transferred back to the health insurance institutions via the health fund. 5 Including transfers to the Innovation Fund and the Structural Fund. 6 Including transfers to the Innovation Fund. 7 Agricultural health insurance institutions. 8 Including the difference compared with the transfers recorded by the health fund as well as the difference between claims and liabilities. 9 Including contributions to the agricultural health insurance institutions.

The SHI

scheme’s revenue rose by 4½% compared with 2023.

At 6½%, contribution receipts continued to grow substantially. Roughly 1 percentage point of this increase is due to the fact that, when averaged annually and across all health insurance institutions, supplementary contribution rates rose by almost 0.3 percentage point to just under 1.8%. The fact that central government paid, in total, just over €6 billion less to the health fund had a dampening effect:

The special funds of €2 billion transferred by central government to the health insurance institutions to stabilise the contribution rate now fell away.
Coronavirus tests were no longer reimbursed by central government (just over -€1 billion).
Central government refunds for hospitals’ increased energy costs fell by €3 billion to €1 billion.

At 6%, the SHI

scheme’s expenditure saw much stronger growth than its revenue.

The health fund’s special payments fell sharply:

its pandemic-related payments expired and there was a significant reduction in its energy crisis-related payments to hospitals. By contrast, health insurance institutions’ expenditure rose sharply, by 7½%. However, growth in spending on benefits was even stronger, reaching 8%. There was a sharp rise primarily in expenditure on the major items hospital treatment (+9%) and pharmaceuticals (+10%), but also in spending on remedies and therapeutic appliances (+8%). Administrative expenditure grew by ½%. The discontinuation of pension provisions of just over €½ billion had an alleviating effect. After adjustment for this factor, administrative expenditure increased by almost 5½%.

2.1.2 Outlook for 2025

For 2025, government plans aimed for a roughly balanced result in the SHI

scheme, with a sharp rise in supplementary contribution rates.

Based on the assumptions made by the group of

SHI

estimators in autumn 2024, contribution receipts would see a steep rise of 5%. Owing to the expiry of the inflation compensation bonus, earnings subject to compulsory contributions will grow more strongly than wages. The health fund’s transfers to the health insurance institutions are set to increase by 4%. Health insurance institutions’ spending on benefits is expected to rise by 7% compared with the estimated annual result for 2024. On this basis, the Federal Ministry of Health calculated a notional supplementary contribution rate of 2.5% to cover expenditure. This constituted an increase of 0.7 percentage point compared with the actual annual average rate in 2024. However, the fact that the health fund pays around €1 billion from its liquidity reserve to the innovation fund and the hospital structures fund over and above the figures projected by the group of

SHI

estimators adds to the burden on the overall result derived on this basis.

As things stand, it is likely that the outturn for 2025 will be more favourable and that a small surplus will be recorded by the SHI

scheme.

The health fund’s deficit will probably be higher if the increase in earnings subject to compulsory contributions is somewhat weaker than assumed – as it is in the Bundesbank’s Forecast. Nonetheless, the health insurance institutions are set to record a significant surplus, with which their reserves are to be brought back up to their minimum. There was a gap of €3 billion in these reserves at the end of 2024. Developments this year are based on the higher-than-estimated expenditure of the health insurance institutions from last year. If this base effect is extrapolated, this results in a cash deficit of €2 billion. However, the health insurance institutions raised the supplementary contribution rate to 2.9% on average, and thus by 0.4 percentage point more than was calculated by the Federal Ministry of Health. This results in additional revenue of €5½ billion compared with the government figure.

2.2 Public long-term care insurance scheme
7
Excluding the long-term care provident fund, which has been receiving annual revenue of 0.1 contribution rate point since 2015 in order to dampen future contribution rate increases from the mid-2030s onwards.

2.2.1 Outturn in 2024

The public long-term care insurance scheme posted a deficit of €1½ billion in 2024, having still recorded a surplus of €2 billion in the previous year. The deterioration in the scheme’s outturn compared with 2023 is entirely attributable to its payment relationships with the long-term care provident fund and with central government.

The long-term care insurance scheme resumed transfers to the long-term care provident fund, paying out €1½ billion to make up for transfers deferred in 2023. However, transfers for 2024 were just under €1 billion lower owing to new legislation.
At the same time, central government cancelled its annual grant of €1 billion. In net terms, this placed a burden of €3½ billion on the scheme’s balance compared with the previous year.

As a result of the deficit, liquid funds fell to €5½ billion at the end of 2024. This amount was roughly equivalent to one month of the scheme’s expenditure and was thus almost at the lower limit. To ensure the solvency of the long-term care insurance scheme, the general contribution rate was increased by 0.2 percentage point to 3.6% (4.0% for childless persons) at the beginning of 2025.

The long-term care insurance scheme saw steep revenue growth of 8½%. This was due in roughly equal parts to the increase in earnings subject to compulsory contributions and higher contribution rates on an annual average. As contribution rates in 2023 had not risen until mid-year, additional revenue of €3½ billion was generated again in 2024. The annual central government grant of €1 billion only introduced as part of the long-term care reform in 2022 was discontinued, which had a dampening effect.

At 15½%, the long-term care insurance scheme’s expenditure saw much stronger growth than its revenue. In addition to the aforementioned transfers to the long-term care provident fund, benefit rates for the long-term care allowance and for non-financial care rose by 5% in 2024. In addition, co-payments for inpatient care were reduced again, which increased the burden on the long-term care insurance scheme. Overall, the benefit increases, viewed in isolation, are likely to have been associated with additional expenditure of just over €2 billion. However, even after correcting for the adjustments, growth in benefit expenditure, at 7½%, was still far stronger than that in earnings subject to compulsory contributions.

2.2.2 Outlook for 2025

The long-term care insurance scheme’s finances are likely to improve somewhat in 2025: it could close the year with a small surplus. Expenditure will probably continue to grow strongly. That said, in addition to demographic-related expenditure dynamics, benefit rates for the long-term care allowance and non-financial care have been raised by a further 5%. Unlike last year, however, no back-payment will be made to the long-term care provident fund. Moreover, the contribution base will probably continue to increase significantly – not least because earnings subject to compulsory contributions will replace the now-expired inflation compensation bonus. More importantly, however, the contribution rate was raised by 0.2 percentage point at the beginning of the year, which will bring in additional revenue of 6%, or €4 billion.

This article takes account of data up to 19 March 2025, 11:00.

List of references

Deutsche Bundesbank (2025), The German economy, supplementary information entitled “Impact of weather on sectoral value added”, February 2025.

Deutsche Bundesbank (2024), Forecast for Germany: Significantly gloomier growth outlook – inflation decreases to 2%, Monthly Report, December 2024.

Deutscher Wetterdienst (2025), The weather in Germany – January 2025.

Footnotes

There were fewer ice days than usual in January. According to the Deutscher Wetterdienst (2025), the weather in January was also very mild. For details on the impact of weather influences on economic activity, see Deutsche Bundesbank (2025).
See Deutsche Bundesbank (2024).
Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar variations, provided they can be verified and quantified.
Exports to the United States even declined in January compared with the previous quarter. By contrast, the export expectations captured by the ifo
Institute increased in February overall. However, US
President Trump’s announcement that, from April onwards, he intends to impose a 25% tariff on EU
goods was announced only after these indicators had been collected.
The annual rate of inflation according to the national Consumer Price Index (CPI
) likewise remained at 2.3%.
For both the headline HICP
rate and the core rate, the annual update of expenditure weights pushed up the figures, as was the case in January.
Excluding the long-term care provident fund, which has been receiving annual revenue of 0.1 contribution rate point since 2015 in order to dampen future contribution rate increases from the mid-2030s onwards.

Commentaries: Economic conditions and Public finances Monthly Report – March 2025

1 Economic conditions

1.1 Muted but positive start for the Germany economy in the new quarter

1.2 Industry remains weak in the underlying tendency

1.3 No impetus from private consumption but some support from service providers

1.4 Labour market remains stable, outlook again gloomier

1.5 Energy commodity prices markedly lower recently

1.6 Inflation down slightly to 2.6% in February

2 Public finances

2.1 Statutory health insurance scheme

2.1.1 Outturn in 2024

2.1.2 Outlook for 2025

2.2 Public long-term care insurance scheme
7
Excluding the long-term care provident fund, which has been receiving annual revenue of 0.1 contribution rate point since 2015 in order to dampen future contribution rate increases from the mid-2030s onwards.

2.2.1 Outturn in 2024

2.2.2 Outlook for 2025

List of references

search.dialog.title

search.empty.title

Cite

Commentaries: Economic conditions and Public finances Monthly Report – March 2025

1 Economic conditions

1.1 Muted but positive start for the Germany economy in the new quarter

1.2 Industry remains weak in the underlying tendency

1.3 No impetus from private consumption but some support from service providers

1.4 Labour market remains stable, outlook again gloomier

1.5 Energy commodity prices markedly lower recently

1.6 Inflation down slightly to 2.6% in February

2 Public finances

2.1 Statutory health insurance scheme

2.1.1 Outturn in 2024

2.1.2 Outlook for 2025

2.2 Public long-term care insurance scheme 7 7 Excluding the long-term care provident fund, which has been receiving annual revenue of 0.1 contribution rate point since 2015 in order to dampen future contribution rate increases from the mid-2030s onwards.

2.2.1 Outturn in 2024

2.2.2 Outlook for 2025

List of references

2.2 Public long-term care insurance scheme
7
Excluding the long-term care provident fund, which has been receiving annual revenue of 0.1 contribution rate point since 2015 in order to dampen future contribution rate increases from the mid-2030s onwards.