The German economy has brightened somewhat, but a widespread upturn is still far from certain. Real gross domestic product (GDP) is likely to have increased slightly in the first quarter. This expectation is supported by a somewhat higher level of industrial output recently, which was also driven by a rise in goods exports. In addition, unusually mild weather in February led to exceptionally strong growth in construction output. However, industrial output remains weak in many economic sectors, and construction output is likely to fall again significantly without the supportive weather effects. Overall, there is still no sign of a sustained improvement for the German economy, as negative factors persist. Higher financing costs and heightened economic policy uncertainty 1 are dampening business investment. Demand for German industrial products is still weak domestically and abroad and is continuing to trend downwards. Likewise, the negative trend in demand for housing construction continued unabated. Households are still reluctant to increase their consumption expenditure despite a fairly stable labour market, substantially higher wages, falling inflation rates and thus a recovery in real incomes. Averaged across January and February, for example, retail sales were markedly down on the previous quarter. It is therefore not yet clear whether the increase in economic output will continue in the second quarter. However, the sentiment among firms, especially business expectations as surveyed by the ifo Institute, has recently shown a marked and broad-based improvement. If business sentiment continues to brighten, the underlying cyclical trend could pick up more clearly than was expected one month previously.

Industrial output increased somewhat in February, but there are no signs of a broad-based recovery yet. Compared with the previous month, seasonally adjusted 2 industrial output rose for the second consecutive month. Averaging across January and February, output was also slightly higher than the average of the fourth quarter of 2023. However, this increase was not very broad-based. It was mainly attributable to energy-intensive industries, 3 whose output increased significantly in January and February. However, their level of production remains significantly below the levels seen before the start of the Russian war of aggression against Ukraine. Production of motor vehicles likewise recorded a marked increase in February but averaged across January and February it remained below the average of the fourth quarter of 2023. 4 Other important sectors, such as mechanical engineering, also fell short of the previous quarter’s average.

Downturn in demand for industrial products continues. Order book levels are still supporting production but industrial new orders in February remained roughly at the low level of the previous month. Excluding volatile large orders, they actually declined even further in February. This also applies to the average of January and February compared with the previous quarter. Both new orders from abroad and domestic demand remained below the previous quarter’s average. By contrast, the recovery of new orders in energy-intensive industries, particularly in chemicals, continued. Averaged across January and February, goods exports proved to be more robust than the weak foreign orders would suggest, however, and were well above the previous quarter’s average. According to the info survey, export expectations brightened markedly as well but remained in negative territory on balance.

Sentiment in the manufacturing sector improved markedly in March according to the info survey. However, it remains to be seen whether this improvement in sentiment will become entrenched and translate into a sustainable recovery in industrial output.

An unusually mild February resulted in exceptionally strong construction output for the time of year, but the general demand situation remains weak. Average temperatures this February were the warmest on record. 5 After seasonal adjustment, this led to a sharp increase in construction output compared with the previous month. Following a weak fourth quarter of 2023, in part due to weather conditions, this growth was thus significantly higher on an average of January and February than in the previous quarter. However, production should fall again since the one-off effect from the mild weather in March cannot be repeated. Unlike in February, the weather in March is not a key factor limiting production on a longer-term average. This is reflected, for example, in seasonally adjusted capacity utilisation in the main construction sector reported by the ifo Institute. It rose sharply in February on the month, but dropped significantly again in March.

The demand situation in construction remains poor and there is no sign of a sustainable recovery in the construction sector. In January, new orders received by the main construction sector remained close to their lowest point of the last two years. In housing construction, they even fell to a new low. According to the ifo Institute, in March, the lack of new orders in the main construction sector reached its highest level since the start of the current period of weakness in 2022. Sentiment also brightened somewhat in the main construction sector recently, but ifo business expectations improved only slightly compared with other sectors and remained at a very pessimistic level.

The labour market remains robust in spite of the weak economic growth that has now persisted for some time. After seasonal adjustment, employment showed significantly weaker growth in February on the month but it still increased by around 16,000 persons. The initial estimate by the Federal Employment Agency – which is currently available for January 2024 – shows that employment subject to social security contributions actually rose by as much as 27,000 on the previous month in seasonally adjusted terms. There was once again particularly strong growth in employment subject to social security contributions in the health and long-term care sector. In addition, a noticeable increase was recorded in the public sector, in transportation and storage, in the hotel and restaurant sector, in energy and water supply and in education. By contrast, temporary agency employment continued to follow a downward trend. Furthermore, economic developments dampened employment in the manufacturing, information and communication and construction sectors. In seasonally adjusted terms, around 190,000 employees were in short-time work for economic reasons in January, slightly more than one month earlier. The employment outlook is stable overall, with most of the leading indicators of employment remaining in neutral territory in March. The ifo employment barometer for trade and industry recovered markedly in fact, and the employment barometer of the Institute for Employment Research (IAB) continued to rise.

Registered unemployment rose slightly in March. In seasonally adjusted terms, it went up again by 5,000 persons, after an increase of 11,000 persons in the previous month. The number of persons registered as unemployed rose to 2.72 million in March, leaving the unemployment rate at 5.9 % due to rounding. Compared with the previous year, the number of unemployed persons went up by just over 175,000, corresponding to an increase of 0.3 percentage point in the unemployment rate. Discounting the effects of the influx of refugees, the rise in unemployment among those covered by the statutory unemployment insurance scheme, which is influenced by cyclical factors, was greater than among those receiving the basic welfare allowance. Nevertheless, the number of unemployed persons receiving the basic welfare allowance also went up markedly. This could be due to the fact that more people are transitioning from receiving benefits under the statutory unemployment insurance scheme to the basic welfare allowance, as the period of economic weakness has now persisted for around two years. The outlook for the next few months has brightened further slightly. The IAB's unemployment barometer picked up somewhat in March, but remains in negative territory. Unemployment is therefore likely to increase only slightly in the next three months.

Energy prices recently saw a marked rise. Crude oil prices went up markedly in recent weeks. As this report went to press, a barrel of Brent crude oil cost US$91, just over 9 % more than in February. This is likely to have been mainly due to tensions in the Middle East, production cutbacks by some OPEC countries and some improvement in the demand outlook. European gas prices also picked up somewhat more strongly recently, trading at €34 per megawatt hour. Russian attacks on Ukrainian gas storage facilities, outages at US and Norwegian gas processing facilities and a certain revival in demand for Asian liquefied gas had a price-driving effect.

Prices excluding energy at the upstream stages of the economy have barely changed recently. By contrast, energy prices continued to edge down somewhat at the upstream stages of the economy in February compared with the previous month. However, energy has a significantly lower share in imports than in industrial products. As a result, prices for imports and industrial products declined to a similar extent. Prices were still down considerably on the year, around 5 % lower for imports and approximately 4 % lower for industrial products.

Seasonally adjusted consumer prices rose somewhat in March compared with the previous month. Services prices continued to display above-average growth, although package holidays became markedly less expensive. By contrast, prices for food and energy remained virtually unchanged. Industrial goods excluding energy became slightly cheaper as a result of price reductions for clothing. Overall, the Harmonised Index of Consumer Prices (HICP) rose by a seasonally adjusted 0.2 % on the month. However, the inflation rate fell markedly from 2.7 % to 2.3 %, as prices for food and industrial goods rose less sharply on the year. 6 . By contrast, services continued to show above-average inflation rates on the year. Core inflation, which excludes energy and food, dropped from 3.5 % to 3.2 %, thus remaining at an above-average level.

The inflation rate is likely to fluctuate strongly in the next few months. Inflation is expected to decline again in April. This is partly due to the fact that Easter fell earlier this year than last. Therefore, the usually steep rise in travel prices in April will probably fail to materialise this year. The rate could jump back to around 3 % in May, however, as the introduction of the “Deutschlandticket” had dampened prices a year earlier. In addition to the phasing out of these two base effects, the inflation rate may also increase mainly due to the recent rebound in oil prices and continued strong wage growth.

Local governments (core budgets and off-budget entities) closed 2023 with a large deficit of €7 billion. This constituted a sharp year-on-year deterioration of €9½ billion, despite tax revenue experiencing a positive one-off effect. The main reason for the deterioration was that spending in the core budgets went up substantially. In addition to personnel expenditure, the prices of purchased services appear to have risen sharply. Local government expenditure and revenue also grew as a result of a statistical reclassification: since the second quarter of 2023, local public transport companies have come under the general government sector as off-budget entities. 7 This move was made largely on account of the sharp increase in subsidies for these entities in conjunction with the new “Deutschlandticket” public transport ticket. The reclassification is unlikely to have had a significant impact on the balance of local government budgets.

Revenue in local government budgets rose sharply (+9 %, or +€30 billion), partly due to the statistical reclassification of local public transport. At just under 7½ % (+€9 billion), tax revenue growth was significantly stronger than that of central and state governments (+2 %). 8 One factor in this was that state governments paid out income tax shares for 2022 to local governments with a lag in some cases. 9 This one-off effect might explain roughly one-third of the growth in local government tax revenue. Besides that, there was a steep increase of 7½ % in the large revenue item local business tax (after deduction of shares accruing to other government levels). Revenue from fees rose very significantly (+21 %, or +€7½ billion), due largely to the reclassification of local public transport. Revenue from fees in the core budgets, which were not affected by the reclassification, increased by only 4½ %.

Expenditure grew even more strongly than revenue (+12 %). The reclassification of local public transport also had an impact here. At 9½ %, however, expenditure just in the core budgets saw substantial growth, too. Overall, other operating expenditure and fixed asset formation in these budgets rose sharply, not least as a result of higher prices. Personnel expenditure in these budgets went up by 7½ %. This reflected, in particular, the sizeable wage agreement reached in the spring of last year. In addition, employee numbers increased due to the reclassification of local public transport. As a result, personnel expenditure in the core budgets and off-budget entities actually grew by 12 %. Social spending rose just as sharply. Growth in this area was broadly based. One exception, however, was benefits for asylum seekers (-8 %).

Last year, local government debt rose substantially, climbing by €15 billion to €160 billion (including liabilities to the public sector). Of this increase, it appears that €6 billion is attributable to newly included debts of local public transport companies to the private sector. 10 The composition of these legacy debts now forming part of local government debt is unknown. Consequently, the change in the composition of debt can only be interpreted to a limited extent. Investment-related credit market debt rose especially sharply (+€13 billion). At the end of 2023, it stood at €125 billion. The volume of outstanding cash advances, which local governments were supposed to use only to plug intra-year funding gaps in ongoing expenditure, rose by €1 billion to €31 billion. The general pattern here has not changed. Around two-thirds of all cash advances were still attributable to local governments in North Rhine-Westphalia. In per capita terms, local governments in Rhineland-Palatinate reported the largest cash advances (€1,180), followed by North Rhine-Westphalia. Cash advances have continued to rise in both federal states. In Rhineland-Palatinate, the partial debt relief programme enacted last year has not been taken into account, as the formalities have not yet been finalised: under the programme, the state will then assume local government cash advances of €3 billion (calculated at the federal state level, this amounts to €720 per capita). 11

Local governments are expected to post another fairly large deficit this year. Specifically, price increases are likely to still have a broad-based impact on expenditure developments. The wage agreement reached in the spring of 2023 will continue to drive up personnel expenditure substantially. Taxes are expected to see only fairly weak growth due to the subdued macroeconomic growth outlook. In addition, the statistical one-off effect on income taxes in 2023 will reduce growth this year. These two factors are likely to push tax revenue growth below what was expected in the latest tax estimate (+5 %).

The EU Member States are currently taking on increasing amounts of joint debt, especially for the off-budget entity NextGenerationEU (NGEU). This is generating deficits and debt at the European level. Comprehensive analyses of national government finances should take these into account. These jointly incurred payment commitments burden Member States’ finances in much the same way as national payment commitments. It is therefore important to ensure transparent and detailed reporting of debt at the EU level, as for national debt. Only then will comprehensive analyses of government finances be possible.

The fact that Eurostat has now published data on the Maastricht debt level and the Maastricht deficit of the EU institutions 12 for the first time is therefore a welcome development. So far, data are available for 2021 and 2022. The figures for 2023 are expected to follow in mid-2024. For the purposes of fiscal analysis, it would be helpful if, in future, the figures were made available at the same time as the validated data on national government finances published in EDP notifications in the spring. 13

Part of this EU debt is offset by claims of the EU institutions on Member States. If the respective Member States settle these claims as agreed, the EU institutions will not need to raise funds for them. The claims on Member States are reflected in the national Maastricht debt levels of Member States as obligations to the EU.

Eurostat therefore also reports the consolidated Maastricht debt of the EU institutions. To calculate this, claims on EU Member States are deducted from the unconsolidated EU debt level. Consolidated EU debt primarily consists of borrowing for grants from the off-budget entity NGEU (see Chart 1.6). Under the current legal framework, Member States will have to finance these debts in proportion to their share in EU gross national income (GNI). In addition, consolidated EU debt also includes, to a lesser extent, debt for loans to non-EU Member States (such as Ukraine).

The Bundesbank uses the consolidated debt reported by Eurostat as a measure of joint burdens and allocates it proportionally to the Member States. Alternatively, it could be unconsolidated EU debt that is allocated to the Member States. 14 Similarly to national debt levels, this would also include debt incurred in order to finance loans to other Member States. 15 Amongst other things, however, this approach raises the question of what financing contribution recipient countries should be determined as making to their own assistance loans. The approach of allocating consolidated EU debt that has been opted for here is therefore a pragmatic solution. It is based on an indicator published by Eurostat that is focused primarily on uncovered future burdens. This is because it is highly likely that these burdens will need to be covered by forms of taxation at the national level.

Unconsolidated EU debt stood at €646 billion (4.1 % of EU GDP) in 2022. Around one-half of this is accounted for by the debt of the European Stability Mechanism (ESM) and the European Financial Stability Facility (EFSF). The other portion is the result of various programmes financed by Member States through joint borrowing. These programmes include macro-financial assistance to non-EU governments (MFA loans), balance of payments (BoP) assistance to EU Member States and loans from the European Financial Stabilisation Mechanism (EFSM). Following the outbreak of the coronavirus crisis, two more debt-financed programmes were launched: the European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) in 2020 and NGEU in 2021. Unlike all other debt-financed programmes, NGEU finances not only loans but also grants to Member States.

The EU institutions’ claims on Member States amounted to €498 billion (3.1 % of GDP) in 2022. They encompass outstanding ESM and EFSF loans, as well as the loans issued under the BoP, EFSM, SURE and NGEU programmes. There are also other claims on Member States, e.g. in the form of government bonds held by the ESM.

Consolidated EU debt thus stood at €148 billion (1.0 % of EU GDP) in 2022 (see Chart 1.6). Alongside their national debt, Member States will shoulder most of this debt burden via higher contributions to the EU budget in the future. Consolidated EU debt largely stems from borrowing for NGEU grants to Member States that have been disbursed. In addition, it encompasses borrowing for NGEU payments that have not yet been disbursed, borrowing for MFA loans to non-EU countries and a residual item. 16

In 2022, consolidated Maastricht debt rose by €63 billion, mainly as a result of additional borrowing for NGEU grants (+62 billion). Furthermore, borrowing for undisbursed NGEU payments and outstanding debt for MFA loans both increased (+€7 billion and +€8 billion, respectively). In the latter case, repayments of €3 billion were offset by new loans of €11 billion for Ukraine. The residual item fell by €14 billion on the year.

According to the current Bundesbank estimate, consolidated debt rose by a further €92 billion to around €240 billion (1.4 % of GDP) in 2023. The EU debt level for 2023 is scheduled for publication by Eurostat in July 2024. However, EU borrowing for NGEU payments and MFA loans can already be measured using figures published by the European Commission. At €183 billion, most of the consolidated debt is attributable to borrowing for NGEU grants that have already been disbursed. Besides this, debt incurred for NGEU payments that had not yet been disbursed rose to a total of €22 billion. The remaining approximately €35 billion is attributable to MFA loans, of which just under €30 billion is for Ukraine.

In addition to the Maastricht debt level, Eurostat also reports a Maastricht deficit for the EU institutions. This amounted to 0.2 % of EU GDP in 2021 and 0.3 % in 2022. In 2023, it could be similarly high. The deficit is mainly attributable to the NGEU grants. In 2023, NGEU grants amounting to 0.4 % of GDP were disbursed. In the national accounts, however, NGEU grants do not affect the deficit at the EU level at the point when the EU pays the grants to the Member States. Instead, they are recorded as a deficit when the Member States spend the NGEU funds. The timing of the EU deficits may therefore differ from that of the grant payments. In some cases, moreover, the European Commission borrows funds for NGEU grants at an earlier point in time. These two effects mean that the impact of NGEU grants on the EU debt level differs from that on the EU deficit. Additionally, and independent of NGEU, there may also be smaller deficits and surpluses in the EU budget that are reflected in the EU deficit.

In addition to national indicators, analyses of government finances should also take account of a country’s share in EU debt and the EU deficit. A Member State’s share in EU GNI is a suitable basis for allocation. 17 It makes sense to use this allocation key because, under the current legal framework, Member States will repay EU debt arising from grants via the EU budget (NGEU grants) or will be liable for EU debt via the EU budget (MFA loans). 18 Member States currently finance the EU budget based mainly on their share in EU GNI.

Germany’s share in consolidated EU debt was estimated to be €60 billion in 2023, or 1.5 % of German GDP (see Chart 1.7). 19 Together with national debt (63.6 % of GDP), this yields a broad debt ratio of 65.1 %. This allocation is based on Germany’s current share in EU GNI, which is 25 %. Allocated EU debt has increased significantly since 2021 as a result of borrowing for NGEU grants. This means that Germany’s broad debt ratio (i.e. including this debt) has been falling less sharply than the national indicator since then. By the end of 2026, Germany’s share in consolidated EU debt is expected to rise by up to 1.3 percentage points as a result of further borrowing for NGEU grants. In total, Germany could then account for €106 billion of borrowing for NGEU grants if its GNI share remains unchanged.

Germany’s deficit ratio stood at 3.6 % in 2021 and 2.5 % in 2022. Proportionally factoring in the EU deficit, this figure would have been 0.2 and 0.3 percentage point higher, respectively. From 2028 onwards, Member States will have to provide the EU with funds to repay the debt incurred for NGEU grants. This will place a burden on the fiscal balances of individual Member States and ease the burden on the EU budget. Factoring in EU deficits in the proposed way, the easing at the EU level offsets the burdens on the national fiscal balances. The allocation of EU deficits therefore means that the budgetary burdens are reflected at the national level at the point in time when Member States spend the NGEU funds. It also alters the annual change in deficits, which provides information about the fiscal impulse on economic activity.

EU debt and deficits should be taken into account in the national and European fiscal rules. European fiscal rules are centred on national Maastricht debt and deficit levels. 20 In other words, jointly incurred debt and deficits at the European level are disregarded at the point in time when they arise. As these have now reached a relevant scale, it would be appropriate to take them into account in the national and European fiscal rules. This would be in keeping with the intention of the rules to effectively limit debt and the resulting future burdens, as Member States have to service EU debt as well as national debt. This would prevent Member States from bypassing their standard borrowing limits by financing deficits through joint EU debt.

The EU fiscal balances must also be taken into account when analysing the impact of the aggregate and national fiscal indicators. This is true, for example, of the fiscal impulse on economic activity. For example, when analysing the EU aggregate, the balances at the EU level should be taken into account alongside national balances. 21

Baker, S., N. Bloom and S. Davis (2016), Measuring Economic Policy Uncertainty, The Quarterly Journal of Economics, Vol. 131, No 4, pp. 1593‑1636.

Deutsche Bundesbank (2024a), Public finances, Monthly Report, February 2024, pp. 57‑82.

Deutsche Bundesbank (2024b), press release of 28 March 2024

Deutsche Bundesbank (2023a), Public finances commentary, Monthly Report, October 2023, pp. 8 f.

Deutsche Bundesbank (2023b), Member States’ financial relationships with the EU budget and the NextGenerationEU off-budget entity in 2022, Monthly Report, September 2023, pp. 79‑86.

Deutsche Bundesbank (2022a), Member States’ financial relationships with the EU budget and the Next Generation EU off-budget entity in 2021, Monthly Report, October 2022, pp. 35‑46.

Deutsche Bundesbank (2022b), Central government’s debt brake: options for stability-oriented further development, Monthly Report, April 2022, pp. 49‑66.

Deutsche Bundesbank (2020), The informative value of national fiscal indicators in respect of debt at the European level, Monthly Report, December 2020, pp. 37‑47.

Deutscher Wetterdienst (2024), press release of 28 February 2024

Federal Statistical Office (2024), press release No 126 of 27 March 2024

Heinemann, F. and M.-D. Moessinger (2024), Intransparente EU-Verschuldung: Deutschlands Anteil liegt bei 262 Mrd €, ZEW policy brief, No 05, April 2024.

Ministry of the Interior and for Sports of the State of Rhineland-Palatinate (2024), press release of 29 February 2024