German economic output fell surprisingly significantly in the fourth quarter of 2024. According to the flash estimate of the Federal Statistical Office, seasonally adjusted real GDP
GDP : gross domestic product
recorded a quarter-on-quarter decline of 0.2 %.
1
Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar variations, provided they can be verified and quantified.
This represents a slight downward revision to an initial estimate published previously.
2
Following initial publication of the annual GDP
GDP : gross domestic product
figures for 2024, the rate of change for the fourth quarter was still estimated at −0.1 %; see Federal Statistical Office (2025a).
The Federal Statistical Office cited significantly lower exports as a major drag on the economy, while private and government consumption expenditure rose.
3
See Federal Statistical Office (2025b).
Private consumption benefited from substantially higher wages. The labour market outlook deteriorated, however. This contributed to the high level of uncertainty among consumers and thus dampened private consumption. Industrial output continued to decline, while construction probably stagnated. The high economic policy uncertainty and now very low capacity utilisation continued to weigh on investment and thus domestic demand for capital goods and construction work. In view of the deteriorated competitive position, German industry was unable to benefit from the growing foreign sales markets. The persistently elevated financing costs probably also dampened investment.
2 Exports and industrial activity remain a concern
Industrial output declined in the fourth quarter, driven by the automotive industry and energy-intensive sectors. Industrial output fell strongly in December in seasonally adjusted terms. Weak motor vehicle production was the main driver.
4
According to VDA
VDA : German Association of the Automotive Industry
figures already available for January, the number of passenger cars produced rose steeply again at the beginning of the year. In view of the weak order situation, some manufacturers may have used the Christmas period for extended plant shutdowns.
Taking the average of the fourth quarter, industrial output was also significantly lower than in the previous quarter. This was mainly due to energy-intensive economic sectors and the production of motor vehicles. Excluding these two areas, production would have increased slightly. A positive development was observed in the production of electrical equipment and data processing equipment, for example, as well as in other transport equipment, which has been expanding steadily for a few years now. In the fourth quarter, industrial output overall was therefore as yet unable to benefit from the stabilisation of new orders. Excluding volatile large orders, new orders have risen slightly since the second quarter of 2024. Nonetheless, demand for German industrial products remains weak. According to a survey conducted by the ifo
ifo : economic research institution
Institute, at the beginning of the fourth quarter, the shortage of orders in the manufacturing sector stood at its highest level since the COVID
COVID : coronavirus disease
-19 crisis and fell only slightly in January. This is reflected in significant underutilisation of capacity in the industrial sector. According to surveys carried out by the ifo
ifo : economic research institution
Institute, capacity utilisation has been declining since October 2022 – albeit only marginally of late. It is now quite considerably below its long-term average.
In line with weak industrial activity, exports also decreased again in the fourth quarter. In particular, fewer capital goods such as motor vehicles were exported. The fact that German exports are profiting so little from the currently moderate growth in global trade is mainly due to the considerable deterioration in German enterprises’ competitive position outside and within the EU
EU : European Union
in recent years. As measured by a survey conducted by the ifo
ifo : economic research institution
Institute, this trend could even have intensified further in the fourth quarter.
Business investment in machinery and equipment is likely to have more or less stagnated in the fourth quarter. On the one hand, domestic sales of capital goods producers increased significantly in price-adjusted terms compared with the previous quarter. On the other hand, price-adjusted capital goods imports declined significantly. Given the very low utilisation rate in industry, still elevated financing costs and high economic policy uncertainty, there is no sign of a rapid recovery in investment activity.
Supplementary information
Climate-related future additional investment in Germany according to business surveys
The transition to a net-zero economy requires considerable investment in the capital stock in Germany. A study carried out by consultancy firm Prognos estimates that additional investment of around €130 billion (just under 4 % of GDP
GDP : gross domestic product
) per year is required in Germany up to 2045 if climate neutrality is to be achieved.
1
See Prognos et al. (2024). A previous study commissioned by KfW
KfW : Kreditanstalt für Wiederaufbau
calculates additional investment of around €70 billion (2 % of GDP
GDP : gross domestic product
) per year up to 2045 (see Brand et al. (2021). The significant discrepancy in the amounts is due to different definitions of additional investment. In Brand et al. (2021), any climate action investment that was planned anyway at the time of the study is factored out of additional investment. In the study by Kemmler et al. (2024), additional investment corresponds to total climate action investment. It is calculated as investment that would not be made without climate action (additional investment compared with conventional fossil reference technologies).
Taken in isolation, such an increase in investment would strengthen the economy’s capital stock. However, this could be counteracted by the fact that climate policy measures mean that emission-intensive capital is, in some cases, written off prematurely (stranded assets). If climate policy measures such as carbon pricing cause a significant increase in energy costs, they could also act as a negative supply shock and dampen production and investment.
2
From a conceptual perspective, an increase in the emissions price acts as a cost shock for emission-intensive firms. Unless passed on fully to customers, higher energy costs reduce the funds available to firms for investment.
In addition, climate change itself can likewise affect the capital stock, for example through more frequent extreme weather events. Business surveys provide information on whether the additional investment needs calculated in the studies are in fact reflected in firms’ investment expectations.
A representative online survey of more than 5,800 firms conducted by the Bundesbank provides information on what domestic additional investment and growth in domestic fixed assets can be expected as a result of climate-related developments.
3
For further information on the Bundesbank Online Panel – Firms, see Bundesbank (2021) as well as Boddin and Köhler (2023).
Additional investment related to climate change covers both the needs arising from global warming or more frequent extreme weather events and the adjustments that climate policy is likely to trigger.
4
The reference is a fictitious scenario without climate change and without climate policy. Firms perceive planned investment expenditure as a nominal variable. The difference between the investment plans in the two scenarios, as asked here, can be interpreted as a real variable if firms implicitly make similar assumptions about how capital goods prices will develop in both scenarios.
The questions were asked for two reference periods in order to distinguish between short-term and medium-term expectations (up to 2026 and beyond). The survey was conducted in the first quarter of 2024.
According to the survey results, most firms do not expect domestic investment to decline due to climate change. More than two-fifths of firms expect investment to remain virtually unchanged and more than two-fifths expect it to rise between 2027 and 2029, while less than one-fifth expect a decline. The outlook for the earlier period 2024 to 2026 is quite similar.
In terms of the value of domestic fixed assets, firms’ expectations of climate-related changes are generally fairly balanced. Just under one-quarter of firms expect positive and one-quarter expect negative effects between 2027 and 2029. The majority expect small changes. Again, a comparison with the period 2024 to 2026 yields no major differences. The fact that many firms expect additional investment but not higher fixed assets suggests that these investments are often replacement investments.
Weighting the data by sales shows a much more positive picture as regards additional investment. There are significant differences between the sectors in some cases. Larger firms tend to expect greater additional investment and thus a stronger increase in their fixed assets. Climate-related developments could therefore well be important from a macroeconomic perspective.
The survey results can be used to make a rough calculation of the expected macroeconomic and sectoral impact. According to these rough calculations based on the sales-weighted results, climate-related developments would lead to additional investment of around 6.3 % between 2027 and 2029. The energy sector expects the highest cumulative rate of change in investment, followed by firms in the waste management and water supply industries. In manufacturing and transportation and storage, the reported impact is also above average, while in other sectors it is somewhat lower. These sectoral results appear plausible, as they reflect, for example, the increased investment needs in the energy sector in connection with the expansion of renewable energies.
5
For 2024 to 2026, firms expect a slightly weaker increase in investment (4.8 % in cumulative terms), while the sectoral distribution is similar.
Firms’ fixed assets could also benefit from climate-related developments in sales-weighted terms. The expected increase in the value of fixed assets in the corporate sector as a whole amounts to around 1.4 % between 2027 and 2029. Sectoral differences are large here as well, however. According to the survey results, climate-related developments could therefore also have a significant impact on the capital stock.
6
Slightly lower cumulated growth of 1 % is expected in the shorter term (2024 to 2026).
Taken in isolation, climate-related developments could increase potential output by strengthening capital input. If the sales-weighted averages are interpreted as expected climate-related changes in the aggregate capital stock, this would result in a cumulative increase of 1.4 % (or 0.5 % per year) in the capital stock. Growth in potential output would thus be around 0.6 % stronger (or 0.2 % per year).
The impact of climate-related developments on potential output is highly uncertain, however. In view of the currently weak investment environment, partly brought about by ambiguous economic policy conditions, it is unclear whether the expectations expressed in the survey will materialise. This is also likely to depend on how consistently and comprehensively the necessary economic policy measures are implemented. Moreover, there is no clear evidence in the literature to date that a carbon pricing policy offers sufficient incentives for environmentally friendly investment. This would help to cushion the potentially negative effects associated with higher energy prices during the transition. It is also not clear how climate-related developments affect productivity growth. For example, the new low-emission parts of the capital stock could be more or less productive than the part of the capital stock they replace.
Supplementary information
Impact of the weather on sectoral value added
Due to climate change, the impact of unusual weather conditions on economic activity is gaining in importance for economic analysis. Germany has experienced more and more frequent weather anomalies in recent years.
1
See Deutscher Wetterdienst (2023, 2024).
The official seasonal adjustment process does not filter out deviations from typical seasonal weather from the time series for economic indicators.
2
See Eurostat
Eurostat : European statistical office
(2024).
Unseasonal weather is therefore a special factor that can cause economic activity to fluctuate in the short term. Findings in the literature suggest that different weather factors, such as temperature or rainfall, have an impact on the economy.
3
See Dell et al. (2014) and more recent research findings such as Gallic and Vermandel (2020), Deutsche Bundesbank (2022), Natoli (2023).
The Bundesbank’s economic analysis already incorporates the number of icy days as a weather variable.
4
Icy days can have a significant impact on GDP
GDP : gross domestic product
(see Deutsche Bundesbank (2014)). They are incorporated into the Bundesbank’s bridge equation model and improve its forecast accuracy. See Pinkwart (2018).
Based on previous and expected unusual weather conditions, other weather variables could improve economic assessments.
5
Looking ahead, this could also benefit the forecast accuracy of the short-term forecasting models used.
The Bundesbank’s survey of firms (BOP
BOP : Bundesbank Online-Panel
-F) provides detailed insights into which weather factors play a role for German enterprises. In the fourth quarter of 2024, firms were asked, amongst other things, how unusual weather-related factors affect their business activity.
6
See Boddin and Köhler (2023) and Deutsche Bundesbank (2025). The questions were asked in the survey for October to December 2024 (waves 45 to 47). A total of 2,506 firms were surveyed.
According to the survey, temperature and rainfall – usual or unusual – have an impact on firms’ production or business activity most often. The survey contains questions on the impact of ten weather-related factors on German enterprises.
7
The ten weather-related factors are temperature, rainfall, soil moisture, wind force, solar radiation, hours of sunshine, humidity, air pressure, air quality and river levels.
As those impacts can vary depending on the season, the survey asked about summer and winter months separately. Around one-quarter of firms stated that the temperature had an impact on their production or business activity. The second most frequently cited weather-related factor was rainfall (22 %). Wind force was the third most common factor in the winter months (10 %). In the summer months, by contrast, solar radiation and hours of sunshine played a greater role, indicated by almost 20 % of the surveyed firms. The weather-related factors of soil moisture, river levels, air pressure, humidity and air quality were significantly less relevant for the enterprises. The construction sector came up most frequently (20 % to 35 %) among the firms which generally ascribe an impact on their production to weather-related factors.
Agriculture and construction, as well as consumption-related service providers, are influenced by the weather relatively frequently. In agriculture,
8
In this context, the agricultural sector also includes the manufacturing sector “Manufacturing of food products” (C10-C12). The two sectors are similar in terms of the impact of weather factors, whereas for the other manufacturing sectors only minor effects of weather on production can be identified.
all weather-related factors have an effect on production throughout the year, including those cited less often overall, such as humidity or air pressure. Temperature is the most frequent factor. In the summer months, more than half of the agricultural firms surveyed also cited solar radiation and hours of sunshine as factors having an effect on production. Construction output is most frequently influenced by temperature and rainfall, as expected, especially in the winter months. In addition, solar radiation and hours of sunshine in the summer months are mentioned relatively often, by around one-third of firms. Quite a large number of consumption-related service providers from accommodation and food services and the retail sectors said that weather-related factors had an effect on their business activity. In accommodation and food services, this is especially true of the summer months. Factors relating to the sun play an important role in this. Manufacturing firms and the rest of the service providers much less frequently reported that weather-related factors have an effect on their production.
9
Manufacturing in this context comprises the production of consumer goods, industrial goods, and capital and durable consumer goods. The rest of the service providers encompasses all service providers except retail and food services.
Even the overall most important factor, temperature, was mentioned by less than one-fifth of the firms. When broken down by region or firm size, there is no notable difference in the results.
10
This means broken down by federal state. Firm size was measured by sales or number of employees.
Braking effects come mainly from exceptionally high or low occurrences or unpredictability of temperature, rainfall and wind force. Of the firms that saw temperature as a relevant factor, 56 % stated that unusually high temperatures dampened production in the summer months. That share amounted to 39 % in the winter months. Both higher amounts of rainfall and stronger winds than usual affect up to 65 % of the enterprises in question throughout the year. Exceptionally low temperatures also impair activity for just over one-quarter of those affected in the winter months. The unpredictability of temperature, rainfall and wind force disrupts production for just over one-fifth of the firms in question. By contrast, up to 63 % of the relevant enterprises gain a certain boost from a particularly high number of hours of sunshine. Adverse effects from this weather factor are much less frequent.
In summary, the analysis shows that it is important to consider weather factors, depending on the season, when assessing the activity of many economic sectors. It demonstrates that temperature and rainfall, in particular, could be used in assessing economic developments going forward.
In the construction sector, demand, output and probably also investment stabilised. Construction investment is likely to have moved sideways at the end of the year after two quarters of decline. This is suggested by seasonally adjusted construction output, which remained stable overall in the fourth quarter. There are no indications that weather conditions had a significant impact for the fourth quarter.
5
According to ifo
ifo : economic research institution
Institute surveys, the share of firms in the main construction sector reporting that weather conditions hindered construction activity was only slightly below the previous quarter in seasonally adjusted terms. See also the supplementary information on the "Impact of the weather on sectoral value added".
Output in building construction and civil engineering rose somewhat again for the first time since the first quarter. By contrast, the decline in the finishing trades continued, albeit at a significantly slower pace. The construction sector as a whole continues to struggle with weak demand, which is well below the highs recorded in 2021. Both new orders and building permits recovered somewhat recently, however. Averaged across October and November, real new orders in the main construction sector, for example, rose markedly overall compared with the previous quarter. Higher financing costs continue to weigh on the sector, especially housing construction. However, the effective rates of interest on housing loans fell somewhat in the second half of 2024, reflecting declining monetary policy restrictiveness.
Private consumption and service providers likely continued to support the economy in the fourth quarter. Private consumption once again benefited from substantial wage growth. However, consumers have still been reluctant to make full use of their additional spending leeway. In particular, the still subdued outlook in the labour market is likely to have contributed to consumer restraint. Nevertheless, fourth-quarter indicators paint a fairly positive picture for private consumption and consumer-related services sectors overall. Both real sales in retail trade and new passenger car registrations rose in the fourth quarter. There was also no further decline in price-adjusted sales in accommodation and food services. The continuing weakness in industry should likewise have had a less negative impact on the services sector in the fourth quarter than in the previous two quarters. This is indicated by real wholesale sales which were markedly higher than the previous quarter’s average. Finally, on an average of October and November, the production index for the services sector likewise rose slightly on the quarter. Service providers are therefore likely to have supported economic activity.
3 Labour market stable in fourth quarter
Employment remained more stable in the fourth quarter than had been expected following the decline in the third quarter. Overall employment remained at the level of the previous quarter. Hiring in some services sectors continued to offset the decline in employment in the manufacturing sector. Short-time work has risen noticeably since the summer holidays. Here, too, industrial jobs are most affected. Unemployment rose moderately, and the outlook remains subdued.
The number of persons in employment rose slightly in seasonally adjusted terms over the last quarter of 2024. This meant that more people were employed in the fourth quarter than had been expected in view of the previous decline and the deterioration in sentiment indicators.
6
In the December 2024 Forecast for Germany, the decline in employment in the third quarter had even been expected to strengthen in the short term. However, the figures now published by the Federal Statistical Office contain a slight downward revision to the level of employment. Nevertheless, the current level of employment exceeds the expected level.
On a quarterly average, the employment level of 46.06 million persons employed was equivalent to that of the third quarter. While the decline in self-employment continued, the number of employees rose somewhat. Within this group, however, there were fewer people who were only doing a “mini-job”. By contrast, the number of employees subject to social security contributions went up somewhat according to the Federal Employment Agency’s initial estimates, which reach up to November.
From a sectoral perspective, the dichotomy between sectors recruiting and those laying off existing workers on balance intensified further in the fourth quarter. Developments in employment subject to social security contributions in manufacturing reflect the difficult structural and economic situation experienced by industry. On an average of October and November alone, employment here was almost 0.5 % below the previous quarter’s level. Particularly firms in energy-intensive and consumption-related industries (excluding the pharmaceutical industry) cut jobs. Another factor is the decline in the number of temporary workers, who are frequently deployed in the manufacturing sector. By contrast, the major industrial sectors – motor vehicle manufacturing and mechanical engineering – virtually maintained their staff levels. The fall in employment in the construction sector slowed down. Meanwhile, employment in some services sectors especially grew at a high pace compared with the summer (at least 0.5 %). These include health and social services, the public sector, the financial sector, energy and water supply, and transportation and logistics. Increased demand for demographic reasons, as a result of digitalisation or due to the energy transition, plays a role in most cases. Other services sectors kept their headcount largely constant.
Increased use of short-time working for economic reasons has been observed since the end of the summer holidays. After remaining at a slightly elevated level since the beginning of 2024, the number of short-time workers rose to almost 300,000 up to November, according to initial estimates by the Federal Employment Agency. As around 85 % of all affected workers are employed in the manufacturing sector, mostly in the metals and technology sectors, the short-time working rate in this sector is above 4 %. The takeup of short-time work has thus risen substantially although it is still far off previous crisis levels.
7
In the second quarter of 2009, at the peak of the economic and financial crisis at that time, more than 23 % of employees in the metals and technology sector were in short-time work. Back then, the manufacturing sector, and in particular the metals and technology sector, were likewise the main users of short-time work for economic reasons. The metal and technology area includes the economic activities 24‑30 and 32 and 33 in the NACE
NACE : Nomenclature générale des activités économiques dans les Communautés européennes
classification system, which comprises, amongst others, the manufacture of basic metals, machinery and equipment and motor vehicle manufacturing.
Short-time work continued to be virtually non-existent in the rest of the economy. The instrument is primarily used to bridge temporary cyclical falls in demand. However, as many firms complain of structural difficulties, short-time work is likely not to be a suitable remedy in many cases.
Registered unemployment saw a further slight uptick. Averaged over the fourth quarter of 2024, a seasonally adjusted 2.86 million persons were registered as unemployed, around 48,000 more than in the third quarter of 2024. This pushed up the unemployment rate by 0.1 percentage point to 6.1 %. Unemployment continued to rise moderately by 11,000 persons in January, taking the unemployment rate to 6.2 %. Approximately half of the increase in recent months occurred in the statutory unemployment insurance scheme, which is subject to cyclical influence. This is somewhat less than in the summer half-year. By contrast, the number of unemployed persons receiving the basic welfare allowance grew somewhat more strongly than in the previous two quarters. This could be linked to the weak economic growth of the German economy that has now persisted for some time. With transition rates from unemployment to employment currently very low, there is likely to be an increase in the number of unemployed persons switching to the basic welfare allowance as unemployment insurance entitlements come to an end. This implies the risk of unemployment becoming increasingly entrenched. The impact of immigrants on unemployment – these individuals mostly end up receiving the basic welfare allowance as they are ineligible for insurance benefits – recently played a lesser role. First, immigration from abroad declined in 2024, and, second, the efforts to integrate refugees are now paying off in rising employment levels.
Although developments in recent months have been more favourable than feared, leading indicators do not suggest any improvement in labour market dynamics. The ifo
ifo : economic research institution
employment barometer, which determines recruitment plans in trade and industry for the next three months, is well into negative territory, despite an initial increase in January. Sentiment continues to be low especially in the manufacturing and trade sectors. The IAB
IAB : Institut für Arbeitsmarkt- und Berufsforschung
’s labour market barometer for the economy as a whole has gradually declined in recent months, but still paints a slightly positive picture overall. However, the indicator is increasingly approaching the neutral threshold. The number of vacant positions reported to the Federal Employment Agency continues to decrease slowly. In particular, the agency received only a few new offers for jobs subject to social security contributions. All in all, there is little indication that the positive surprises seen in the fourth quarter will persist when it comes to employment. Unemployment is also likely to continue to rise. As this report went to press, the IAB
IAB : Institut für Arbeitsmarkt- und Berufsforschung
unemployment barometer remained on a downward trajectory.
4 Wage growth somewhat less strong recently
Growth in negotiated wages was strong in the fourth quarter, albeit somewhat weaker than in the third quarter. Including additional benefits, they were up by a substantial 5.8 % on the year in the fourth quarter of 2024, compared with 8.9 % in the previous quarter. The high growth in the third quarter had been caused by one-off effects stemming from high inflation compensation bonuses and back-payments, particularly in trade. These no longer had an impact on aggregate negotiated wages in the fourth quarter. A different picture emerges when special payments such as inflation compensation bonuses
8
The tax and social contribution-free inflation compensation bonuses ceased at the end of December 2024.
are stripped out of negotiated wages and only basic rates of remuneration are considered. In this configuration, negotiated wages in the economy as a whole rose by 6.6 % on the year in the fourth quarter, a distinctly stronger increase than in the third quarter (5.7 %).
Negotiated wages once again rose more sharply in services than in manufacturing. In many services sectors, it is easier to attain higher wages than in industry and construction given the better economic situation combined with rising demand for labour.
In recent times, there have been hardly any new agreements for larger sectors. However, a wage agreement was reached at Volkswagen. From an aggregate perspective, however, it should be seen as a special case affecting just one corporate group and hence has no direct signal effect for other sectors. What the agreement does show, though, is that unions may be willing to agree to temporary wage losses in exchange for protecting jobs when structural changes coincide with an episode of economic weakness.
9
The negotiating parties agreed to protect the jobs of core staff only. Around 35,000 jobs may be cut up to 2030 in a socially responsible manner. At the same time, it was agreed that there will be no compulsory redundancies and a roadmap for plant capacities was adopted.
Deutsche Bahn also concluded wage negotiations recently. Its agreement with the German Railway and Transport Union entails considerably lower wage increases than in the arbitration in August 2023 and an extension to the guarantee of job security. It is also striking that wage negotiations are taking longer than usual in some sectors. In system catering, for example, negotiations have been under way since June of last year with no result, and the parties are heading for arbitration. Painters and varnishers are also exploring the possibility of mediation after four months of negotiations.
The 2025 wage round is smaller than the previous year’s and covers around 8 million employees. This year, negotiations are taking place in the public sector
10
The previous wage agreement for central and local government expired at the end of December 2024 and is currently being renegotiated. The wage agreement for state government ends on 31 October 2025.
, for insurers, the steel industry and temporary agency workers, for example. The unions’ current wage demands range from 6.5 % (textile and clothing industry in western Germany) to 19 % (system catering) for a term of 12 months. This is still above average. However, the latest wage demands are lower than those made when inflation was peaking. Nevertheless, services unions are seeking to compensate for the dampening effect stemming from inflation compensation bonuses having ceased in many cases and also to achieve additional increases. By contrast, the industrial sector’s current weak spell could dampen wage settlements there somewhat. Overall, given the prolonged period of economic weakness and significantly lower inflation rates, the forthcoming wage negotiations will probably result in distinctly lower agreements than in the past two years.
Actual earnings probably grew a little less strongly in the fourth than in the third quarter. This is indicated by the nominal wage index of the Federal Statistical Office,
11
Unlike actual earnings in the national accounts, this index is compiled using the nominal wages of full-time employees only.
with its annual rate falling from 5.9 % in the third quarter to 5.0 % in the fourth.
Wage growth was once again robust in 2024 as a whole. Actual earnings were up 5.3 % on the year, compared with 6.4 % previously, according to preliminary data from the Federal Statistical Office. Negotiated wages climbed by as much as 6.1 % in 2024, compared with 4.0 % in the previous year. The negative wage drift is reflective of the fact that actual earnings increased more rapidly during the period of high inflation and negotiated wages are still lagging behind in some cases. Another factor may be that in 2023 some inflation compensation bonuses and regular wage increases were voluntarily brought forward. This led to negative base effects in 2024.
The statutory general minimum wage was raised to €12.82 per hour at the beginning of the year (+3.3 %). The independent Minimum Wage Commission will deliver a recommendation for the regular adjustment of the minimum wage level to the Federal Government by the end of June 2025. The Minimum Wage Commission conducts an overall assessment guided by previous wage developments. Starting from this year, it will also consider the reference value of 60 % of gross median wages of full-time employees and the criteria of the EU
EU : European Union
’s Minimum Wage Directive.
12
According to Article 5(2) of the EU
EU : European Union
Minimum Wage Directive, these criteria are the purchasing power of statutory minimum wages, taking into account the cost of living, the general level of wages and their distribution, the growth rate of wages, and long-term national productivity levels and developments.
5 Prices moderately higher despite reduced energy costs
Consumer prices (as measured by the Harmonised Index of Consumer Prices, or HICP
HICP : Harmonised Index of Consumer Prices
) rose again moderately in the fourth quarter. On average across the months of October to December 2024, consumer prices increased by a seasonally adjusted 0.5 %, compared with 0.4 % in the previous quarter. Falling energy prices continued to have a dampening effect, even though the decline slowed compared with the third quarter. The lower oil price had a significant impact on refined petroleum products in particular. By contrast, food price inflation picked up again markedly. Prices of fruit and dairy products, in particular, rose substantially. Services prices continued to rise significantly, but less sharply than in previous quarters. In the case of non-energy industrial goods, however, price inflation saw a distinct uptick again. Annual headline inflation rose by 0.3 percentage point to 2.5 % in the fourth quarter. Core inflation (HICP
HICP : Harmonised Index of Consumer Prices
excluding energy and food) edged up slightly to 3.2 %.
Averaged over 2024, the inflation rate fell significantly to 2.5 %. In 2023, it had come in at 6.0 %. In particular, the upward pressure on goods prices subsided substantially. At 2.8 %, the rate of inflation for food was close to the historical average in 2024. Inflation for non-energy industrial goods fell to 1.5 % and likewise approached the historical average. Energy actually made a significantly negative contribution to the HICP
HICP : Harmonised Index of Consumer Prices
rate. Only services inflation remained unusually high, at 4.3 %, and declined only a little compared with 2023. The large wage increases had a particularly strong impact here.
Inflation held steady at 2.8 % in January 2025.
13
January values are based on the regularly updated HICP
HICP : Harmonised Index of Consumer Prices
weights for 2025. The rate according to the national CPI
CPI : consumer price index
, whose weights were not updated, fell from 2.6 % in December to 2.3 % in January.
In month-on-month terms, too, consumer price inflation continued at the same pace as in December. Energy prices increased especially strongly, driven by significantly higher fuel prices. This was due to both the increase in the national carbon price as of the beginning of the year and higher crude oil prices. The depreciation of the euro against the US
US : United States
dollar further amplified the price-driving effect of the higher crude oil prices. This contrasted with a steep decline in food prices. Prices of fruit and of meat products were both down considerably on the previous month. The prices of non-energy industrial goods decreased marginally. By contrast, services became markedly more expensive again recently. In particular, prices of administered services rose sharply in January. The price increase for the “Deutschlandticket” and higher costs in the health sector had an impact here. Annual core inflation rose somewhat, from 3.3 % in December to 3.6 % in January.
14
The regular updating of the HICP
HICP : Harmonised Index of Consumer Prices
weights also plays a role here.
The inflation rate is likely to come down over the next few months, before going back up temporarily from the middle of the year. Services are the main driver of the expected disinflation process. This is partly because of lower wage increases. Nevertheless, services inflation should remain significantly above average. Prices of non-energy industrial goods will rise moderately from today’s perspective. On balance, the disinflation process is therefore likely to continue for the core inflation rate. By contrast, the contribution of energy is likely to pick up again over the course of the year, due, in part, to base effects. Food prices are expected to go up significantly due to price developments at upstream stages and after-effects from the exceptionally large wage increases in the retail sector.
Supplementary information
House prices in Germany in 2024
House prices stabilised in 2024. On an annual average, residential real estate prices in Germany fell somewhat. As the year progressed, they picked up again following the first half of the year, however. Slightly improved financing costs and increased purchasing power gradually started to make purchasing residential property more attractive again. Households increasingly benefited from rising incomes, and employment picked up, whilst inflation eased. In addition, the slowing expansion of supply and the further rise in construction prices prevented prices from declining more significantly. Overvaluations were largely eliminated in line with the, on average, lower price level relative to the previous year.
1
This section looks at developments in residential property prices in the context of the real economy. For more on the financial stability aspects of residential real estate financing, see Deutsche Bundesbank (2024).
As price developments only started to turn around in the course of the year, prices remained below their year-earlier level on an annual average. According to data from the Association of German Pfandbrief Banks (vdp
vdp : Verband deutscher Pfandbriefbanken
), the prices of owner-occupied housing fell by 1.6 % in 2024. On average, the Federal Statistical Office’s price index fell by 2.8 % in the first three quarters of 2024 compared with the same period of the preceding year. Hypoport AG
AG : Aktiengesellschaft
’s EPX
EPX : Europace Hauspreisindex
price index for residential real estate, which shows price developments turning somewhat earlier, rose by 1.2 % in 2024.
Residential real estate prices also fell in towns and cities. Calculations based on bulwiengesa AG
AG : Aktiengesellschaft
data show that house prices in 127 towns and cities fell by 1.4 % last year. The price decline thus weakened significantly compared with the previous year (-4.6 %). In the seven major cities, the decline was 1.8 %.
2
The seven major cities are Berlin, Cologne, Düsseldorf, Frankfurt am Main, Hamburg, Munich and Stuttgart.
According to the vdp
vdp : Verband deutscher Pfandbriefbanken
index, prices for owner-occupied housing fell by 1.0 % in the seven major cities.
Rents for new lettings were raised less dramatically in 2024 than in the preceding year. According to vdp
vdp : Verband deutscher Pfandbriefbanken
data, rents for new lettings rose by 5.5 % in Germany. According to calculations based on data provided by bulwiengesa AG
AG : Aktiengesellschaft
, rents for new lettings were up by 3.5 % in towns and cities. They thus appreciated significantly less compared with the previous year by both measures. In the seven major cities, the rate of increase in rents for new lettings likewise subsided. As a consequence, inflation in rents and inflation in properties for purchase tended to converge as compared with 2023.
Demand for housing remained strong overall despite monetary policy tightening. Factors here were the comparatively stable labour market, considerable wage growth and declining inflation. The somewhat lower growth in rents should not be interpreted as a sign of weaker demand. In actual fact, demand for new housing, which had temporarily shifted to the rental market, increasingly reverted to buyer interest as, given increasing incomes, slightly improved financing costs and lower inflation, the affordability of credit-financed residential property purchases improved. In addition, the number of one-person households probably continued to rise, partly as a result of demographic factors.
Transactions in the residential real estate market picked up in 2024. A newly developed Bundesbank indicator for transactions in the residential real estate market is based on tax revenue from real estate acquisition tax. It is available in a fairly timely manner after the end of the reporting quarter.
3
The period from the end of the reporting quarter is based on the availability of the vdp
vdp : Verband deutscher Pfandbriefbanken
price index for owner-occupied housing. A similar transaction indicator has been developed by Kholodilin and Rieth (2024).
It shows that transactions had collapsed abruptly after the interest rate hikes in 2022. Market activity was likewise exceptionally low in 2023. It has recovered somewhat since the beginning of last year.
4
A variant of the indicator that includes the commercial real estate market is also available.
Overall, however, the number of residential real estate purchases remained significantly lower than during the multi-year upswing in the residential real estate market lasting until around 2021‑22.
The expansion in the supply of housing slowed last year. Construction costs continued to rise, albeit not as sharply as in the preceding years. With construction prices having reached very high levels, investments in additional housing were unprofitable in some instances. The number of completed dwellings is likely to have fallen well short of the mark of around 300,000 units reached in previous years. This is suggested by the fact that there have, for some time now, been a large number of construction project cancellations and also by the sharp decline in the order backlog in housing construction.
5
For more information on these cancellations, see ifo
ifo : economic research institution
Institute (2024).
New orders did not recover in 2024 from their extremely low level of 2023. In addition, construction investment and building permits were roughly as low as at the start of the upswing in the German residential real estate market in the early 2010s. The number of approved projects dropped to 215,000 residential units.
Overvaluations of residential real estate in Germany were largely eliminated last year. According to the results of the regionally differentiated panel estimation model, residential real estate prices in German towns and cities in 2024 were not far above the value that is justified in terms of socio-demographic and economic fundamentals.
6
For more on the valuation approaches, including the panel model approach, see Deutsche Bundesbank (2020).
Both the ratio of property purchase prices to annual rents for dwellings in towns and cities and the aggregate price-income ratio was less than 15 % above its longer-term average. For Germany as a whole, the long-term relationship between real estate prices, interest rates and income points to price deviations of less than 10 %.
6 German economy could grow a little in the first quarter
Despite persistently weak underlying economic conditions, German output could pick up slightly in the first quarter. Industry could be less of a drag than before in the first quarter and construction could remain at roughly the level of the previous quarter. Factors such as high uncertainty, increased financing costs and low capacity utilisation are still weighing on investment. However, demand (as measured by order intake) has recently recovered somewhat in both sectors. Housing construction benefited from the decline in interest rates for building finance up to the end of 2024. Even so, surveys conducted by the ifo
ifo : economic research institution
Institute on the shortage of orders and equipment utilisation did not indicate any improvement in January. By contrast, private consumption could expand again somewhat: the sharply higher wages offer further scope for additional consumer spending. At the same time, the labour market will probably continue to cool, with moderately declining employment and a slight rise in unemployment, and consumer sentiment remains gloomy. Consumers will therefore probably make only hesitant use of this additional scope for spending. Exports have recently been a particular dampener on economic activity. They may develop somewhat less unfavourably in the first few months of the current year. That would be the case, in particular, if they were to benefit from anticipatory effects in the face of looming US
US : United States
tariffs. All in all, economic output could see marginal growth in the first quarter. The German economy essentially remains trapped in stagnation, however.
Industry could stabilise somewhat in the first quarter given signs of recovery in order intake. Demand for German industrial products remains comparatively weak, but its underlying trend has recently recovered somewhat. Averaged over the fourth quarter, industrial new orders were stagnant compared with the previous quarter. However, excluding volatile large orders, there was an increase in new orders from both Germany and abroad. For foreign orders, this was already the third consecutive quarter-on-quarter increase. Given that orders are stabilising, capacity utilisation in the manufacturing sector declined only marginally in January, according to the ifo
ifo : economic research institution
Institute. In addition, the share of firms reporting a shortage of orders actually dropped slightly. At the same time, firms’ assessment of the current situation improved somewhat. Business expectations were not any brighter, though. In light of this, industrial output looks to be experiencing a sideways movement at best. Motor vehicle production, at least, is likely to have a dynamic start to the first quarter. Here, data from the German Association of the Automotive Industry on the number of passenger cars produced indicate a countermovement to the weak output in December.
Private consumption and, above all, service providers are expected to provide further support for the economy in the current quarter. Private consumption continues to benefit from substantially higher wages. However, consumer sentiment remains subdued according to surveys conducted by the market research institute GfK
GfK : market research institution
.
15
See GfK
GfK : market research institution
(2025).
In January, economic and income expectations as well as the propensity to purchase were lower than the average of the previous quarter, while the propensity to save was stagnant. Motor vehicle registrations by private owners were only at the previous quarter’s level in January, according to the German Association of the Automotive Industry. Surveys conducted by the ifo
ifo : economic research institution
Institute are also delivering mixed signals for consumer-related services. While business conditions improved in accommodation and food services, they remained unchanged in the retail sector. However, the services sector as a whole is likely to continue to support the economy. The ifo
ifo : economic research institution
business situation and, above all, business expectations improved markedly here. In addition, S&P
S&P : Standard & Poor’s
Global’s Purchasing Managers’ Index (PMI
PMI : purchasing managers' index
) remained well above the expansion threshold for the services sector and improved to a six-month high in January.
List of references
Boddin, D. and M. Köhler (2023), The High Frequency Firm Survey “Bundesbank Online Panel – Firms”, Jahrbücher für Nationalökonomie und Statistik, Vol. 244(3), pp. 267‑275.
Brand, S., D. Römer and M. Schwarz (2021), Investing EUR
EUR : Euro
5 trillion to reach climate neutrality – a surmountable challenge, KfW
KfW : Kreditanstalt für Wiederaufbau
Research, Focus on Economics, No 350, 7 October 2021.
Dell, M., B. F. Jones and B. A. Olken (2014), What Do We Learn from the Weather? The New Climate-Economy Literature, Journal of Economic Literature, Vol. 52(3), pp. 740‑798.
Natoli, F. (2023), The Macroeconomic Effects of Temperature Surprise Shocks, Bank of Italy Temi di Discussione (Working Paper), No 1407.
Pinkwart, N. (2018), Short-term forecasting economic activity in Germany: a supply and demand side system of bridge equations, Deutsche Bundesbank Discussion Paper, No 36/2018.
Prognos (2024), Climate protection investments for the transformation of the energy system.
