1 Economic conditions

1.1 Underlying trends: Economic recovery in Germany stalling

The economic recovery in Germany is stalling. Real gross domestic product (GDP) is likely to decline again slightly in the first quarter. The German economy continues to experience headwinds from various directions. Industry, in particular, is likely to remain sluggish. Orders for domestic industrial goods dropped further in Germany and abroad. Higher financing costs continue to dampen domestic demand, particularly in the area of investment. Heightened economic policy uncertainty is a further drag, especially with regard to the future direction of climate and transformation policy. Enterprises also perceive economic policy framework conditions, such as the growing burden of bureaucracy and regulation, as a barrier.[1] Private consumption is not expected to provide any major stimulus for now, either. Consumers are unsettled and reluctant to spend, even though their scope for spending is generally improving on the back of falling inflation rates and a steep rise in wages. At least the previously very high sickness rate is slowly easing and construction is likely to have been temporarily bolstered by the mild weather in February, although the sector is still navigating choppy waters. Overall, too, the still depressed survey indicators, such as business expectations as surveyed by the ifo Institute, also currently provide little evidence of an economic recovery for the second quarter.

1.2 Industry remains in a sluggish phase

Industry has not yet emerged from its sluggish phase and continues to struggle with a difficult competitive environment. Industrial output was slightly up on the month in many sectors in January 2024 after seasonal adjustment.[2] Following a very weak December, higher output in the energy-intensive sectors is striking, as at the turn of 2022‑23. December could have been used more for holiday shutdowns or similar in these sectors. In spite of the month-on-month increase, industrial output contracted across all sectors in January compared with the fourth quarter of 2023. Production of motor vehicles saw a particularly significant fall.[3] The short-term outlook is also rather gloomy, as weakness in demand persists. Following a sharp rise in the previous month, industrial new orders dropped substantially again in January, even disregarding volatile large orders.[4] A comparison with the previous quarter does not provide a brighter picture either. This was mainly due to foreign orders, but there were also fewer domestic orders. Particularly weak demand was observed for capital goods, with an especially sharp decline in demand from Germany and the euro area. In a long-term comparison, order backlogs in industry remain high and this is likely to have still cushioned the ongoing slowdown in demand somewhat. In January, nominal exports of goods increased significantly compared with December and with the fourth quarter of 2023. However, given the persistent weakness in demand from abroad, the sustainability of this positive trend remains to be seen.

**Table 1.1a: Economic conditions in Germany, part 1**
Seasonally and calendar adjusted; for explanatory notes, see Statistical Section, XI, and Statistical Series – Seasonally adjusted business statistics
Item	2023					2024
Item	Q2	Q3	Q4	Nov.	Dec.	Jan.
Orders received (volume)
Industry 2021 = 100	90.8	86.8	88.4	85.2	95.4	84.6
of which:
Domestic	90.6	83.8	86.2	83.5	91.8	81.5
Foreign	91.0	89.0	90.1	86.5	98.0	86.8
Main construction 2015 = 100	104.8	119.1	107.7	102.3	110.4	…
Output 2021 = 100
Industry	99.8	97.5	95.4	96.0	93.7	94.7
of which:
Intermediate goods	91.4	90.2	87.2	88.6	84.2	87.9
Capital goods	107.6	104.3	103.3	103.5	102.2	100.1
Construction	97.1	95.9	92.2	93.1	90.2	92.6
Foreign trade € billion
Exports	401.29	392.33	389.87	133.56	127.58	135.65
Imports	346.70	337.20	325.74	111.72	104.25	108.08
Balance	54.58	55.12	64.12	21.84	23.32	27.57
Memo item: Current account balance	66.60	68.48	58.21	23.22	22.93	29.28

1.3 No stimulus from private consumption

Private consumption will probably increase only tentatively at most in the current quarter as well. Consumers remain unsettled. Price and seasonally adjusted sales declined in the retail sector in January and were below the level of the fourth quarter of 2023. The decline was broadly based across segments. Averaged across January and February, motor vehicle registrations were also down on the previous quarter, according to data provided by the German Association of the Automotive Industry. The expiry of the environmental bonus for private electric vehicles led to anticipatory effects in December 2023 and a sharp decline in electric car registrations in January. Only the hotel and restaurant sector managed a slight increase in price and seasonally adjusted sales recently. According to surveys by the ifo Institute in February, the business climate in consumer-related services sectors continued to deteriorate. The assessment of the business situation in retail and, in particular, in the hotel and restaurant sector was once again lower in February. Although expectations for the next six months brightened somewhat in both sectors, they remained pessimistic. Consumer restraint is also confirmed by the GfK consumer climate index, which merely stabilised at a low level for March. Despite a rise in consumers’ income expectations, the propensity to purchase remained weak and the propensity to save was significantly higher.

1.4 Labour market remains robust

The labour market remains robust in the spell of weak economic growth that has now persisted for some time. Seasonally adjusted employment increased by 54,000 people in January, roughly twice as much as in the previous month. The initial estimate by the Federal Employment Agency – which is currently available for December 2023 – shows that the number of employees subject to social security contributions went up by 19,000 on the previous month in seasonally adjusted terms. There was a marked increase in the number of jobs filled in business services and in the area of healthcare and long-term care. Furthermore, employment rose markedly in the public sector, energy and water supply and, once again, in the hotel and restaurant sector. By contrast, economic developments dampened employment in the areas of temporary agency work, manufacturing, trade and, to a small extent, in construction. In December, around 175,000 employees made use of short-time work for economic reasons, somewhat fewer than one month earlier. The employment outlook is stable overall, with most of the leading indicators of employment remaining in neutral territory in February. Only the ifo employment barometer for trade and industry continued its downward trend, in February falling to its lowest level since the first quarter of 2021.

Registered unemployment rose slightly in February. In seasonally adjusted terms, it rose again by 12,000 persons, after its previously marked increase had temporarily come to a halt in January. The number of people registered as unemployed increased to 2.7 million in February, leaving the unemployment rate at 5.9 % due to rounding. Compared with the previous year, the number of unemployed persons went up by just under 200,000, corresponding to an increase of 0.4 percentage point in the unemployment rate. Discounting the effects of the influx of refugees, the rise in unemployment among those covered by the cyclically influenced statutory unemployment insurance scheme was greater than among those receiving the basic welfare allowance. Furthermore, the nevertheless marked increase in recipients of the basic welfare allowance could indicate 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 gone on for a good 18 months. As in previous months, the outlook for the next few months has brightened slightly. The unemployment barometer of the Institute for Employment Research (IAB) picked up somewhat in February, but remains in negative territory. Unemployment may therefore increase only slightly in the next three months.

**Table 1.1b: Economic conditions in Germany, part 2**
Seasonally and calendar adjusted; for explanatory notes, see Statistical Section, XI, and Statistical Series – Seasonally adjusted business statistics
Item	2023				2024
Item	Q2	Q3	Q4	Dec.	Jan.	Feb.
Labour market number in thousands
Employment	45,946	45,943	45,977	46,006	46,060	…
Vacancies¹	771	742	733	735	734	727
Unemployment	2,587	2,632	2,691	2,701	2,701	2,713
Unemployment rate (%)	5.6	5.7	5.8	5.9	5.9	5.9
Prices
Import prices; 2015 = 100	126.5	125.2	126.7	125.8	…	…
Producer prices of industrial products; 2021 = 100	130.4	129.1	128.5	127.6	127.6	126.9
Construction prices;² 2015 = 100	161.0	161.6	162.4	.	.	.
Harmonised consumer prices; 2015 = 100	125.6	126.5	126.8	126.7	127.4	127.8
1 Excluding government-assisted forms of employment and seasonal jobs. 2 Not seasonally and calendar adjusted.

1.5 Commodity prices recently mixed

Energy prices have recently developed unevenly. While crude oil prices rose slightly, European gas prices saw another marginal drop. As this report went to press, a barrel of Brent crude oil cost US$87, just over 9 % more than in January 2024. This is likely to have been due, among other things, to the decision of some OPEC countries and their partners to extend their production cutbacks. European gas prices fell by 5 % over the same period. The weather in Europe – which has been very favourable in the meantime – and the persistently stable supply of gas had a dampening effect on prices.

1.6 Inflation rate down a little further in February, core rate up

Price pressures at the upstream stages of the economy continued to decline at the beginning of the year, mainly owing to energy. Import prices were down month on month in January, with energy prices, in particular, falling steeply. Producer prices, for which February data are already available, dropped moderately overall likewise due to energy, but remained roughly constant when energy was not considered. Compared with the previous year, prices for imported goods and for domestic products were recently down by 8.5 % and around 4.1 %, respectively.

Consumer price growth was strong again in February. Consumer prices rose in seasonally adjusted terms in February. Services prices were again raised at an above average rate. Prices for energy and non-energy industrial goods also saw marked increases, while unprocessed food prices fell sharply. The Harmonised Index of Consumer Prices (HICP) rose by a seasonally adjusted 0.3 % on the month. Nevertheless, the rate of inflation measured in terms of the HICP came down from 3.1 % to 2.7 % relative to the previous year.[5] This was mainly due to the year-on-year decline in costs for food, energy, and non-energy industrial goods. By contrast, services continued to show an above average inflation rate. Core inflation excluding energy and food held roughly steady at 3.5 % (January: 3.4 %).

The inflation rate is likely to fluctuate markedly in the second quarter. The inflation rate may well trend down further in the coming months. While price pressures for food and non-energy industrial goods can be expected to decline markedly, a much slower disinflation process is anticipated in the services sector. This is due in part to current strong wage growth. However, owing to the calendar effects caused by this year's early Easter week, greater fluctuations in the inflation rate are expected compared with the previous year. Thus, the HICP for package holidays this year is expected to be significantly higher in March and significantly lower in April than it was last year.

2 Public finances

2.1 Statutory health insurance scheme

2.1.1 Sharp deterioration in annual result for 2023

The statutory health insurance (SHI) scheme (comprising the health insurance institutions and the health fund) posted a deficit of €5 billion in 2023, according to preliminary figures. The deficit was €2½ billion larger than had been expected based on the assumptions of the group of SHI estimators from the autumn of 2023.[6] This was mainly due to significantly higher spending on benefits by the health insurance institutions. The financial result of the SHI scheme deteriorated by €10 billion year on year.[7] This was largely because of lower special grants from central government. Instead of these, the health insurance institutions and the health fund were required to use reserves in 2023, which were in some cases sizeable, to finance deficits. The deterioration had thus been budgeted for.

At almost €3½ billion, the lion’s share of the deficit was attributable to the health fund (2022: surplus of just over €4½ billion). At the end of 2023, the fund’s reserves amounted to €9½ billion (lower limit in 2023: €4½ billion).[8] The health insurance institutions closed the year with a deficit of €2 billion (previous year: surplus of €½ billion). Their reserves were thus down to €8½ billion at the end of the year (lower limit: €5 billion).

2.1.2 Significant reduction in revenue

The revenue of the SHI scheme was down by 3½% on the year. Contribution receipts saw substantial growth of just over 6 %, though inflation compensation bonuses exempt from social contributions still had a dampening effect. Roughly 1 percentage point of this increase is due to the fact that supplementary contribution rates rose by just under 0.2 percentage point on average to 1.5 %. However, central government paid €28 billion less to the health fund overall:

Central government’s special funds to stabilise contributions declined by €12 billion (to €2 billion; central government’s multi-year loan of €1 billion is not included).
Because pandemic-related payments have largely ceased, central government reduced the associated refunds by €20 billion to just under €1½ billion.
Meanwhile, central government paid additional funds to hospitals to ease the burden of higher energy costs (+€4 billion).

2.1.3 Only a small decline in expenditure

Overall, SHI scheme expenditure decreased by only ½% and thus saw less of a decline than revenue. Special payments from the health fund fell significantly, as the major pandemic-related payments had largely ceased. Instead, the fund was now passing on new funds to hospitals to help cover energy costs, but these payments were quantitatively much lower. By contrast, health insurance institutions’ expenditure rose significantly.

Health insurance institutions’ expenditure on benefits rose steeply (+5½%). This exceeded the expectations of the group of SHI estimators from the autumn of 2023 by almost 1 percentage point (additional expenditure of around €2 billion). In particular, spending on hospital treatment, a large expenditure item, rose steeply (+6½%). Payments for remedies and therapeutic appliances and for home nursing increased even more sharply (+9 % and + 13 %, respectively). Growth in outlays for medical treatment and pharmaceuticals, meanwhile, was below average (almost + 2 % and + 3 %, respectively). In the case of the latter, the measures introduced with effect from 2023 to curb spending appear to have had an impact here.

**Table 1.2: Statutory health insurance scheme: overview of finances for the scheme as a whole**
€ billion
Revenue			Expenditure
Item	2022¹	2023²	Item	2022¹	2023²
Health fund (HF)
Contributions	239.5	252.3	Transfers to HIIs³	285.2	299.6
Supplementary contributions	21.8	25.3	Administration	0.1	0.1
Central government grants including coronavirus funds	50.0	21.8	Coronavirus response measures	21.4	5.3
Capital levy	-	2.5	Other expenditure⁴	0.4	0.4
Other revenue	0.0	0.1
Deficit	-	3.3	Surplus	4.3	-
Total	311.3	305.3	Total	311.3	305.3
Health insurance institutions (HIIs)
Transfers from HF³	285.2	299.6	Spending on benefits	273.0	287.6
Other contributions	1.1	1.1	Administration	12.4	12.8
Central government grants to AHIIs⁶	0.2	0.1	Other expenditure⁵	3.4	3.4
Other revenue⁷	2.7	3.5	Capital levy	-	2.5
Deficit	-	1.9	Surplus	0.4	-
Total	289.2	306.2	Total	289.2	306.2
Statutory health insurance (SHI) scheme
Contributions	262.4	278.7	Spending on benefits	273.0	287.6
Central government grants including coronavirus funds	50.2	21.9	Administration	12.4	12.8
Other revenue	2.7	3.7	Coronavirus response measures	21.4	5.3
Capital levy	-	2.5	Other expenditure	3.7	3.7
			Capital levy	-	2.5
Deficit	-	5.1	Surplus	4.7	-
Total	315.2	311.9	Total	315.2	311.9
1 Final annual figures (KJ1). 2 Preliminary quarterly figures (KV45). 3 In 2023, including additional funds stemming from the capital levy that are transferred back to the health insurance institutions via the health fund. 4 Including transfers to the Innovation and Structural Funds. 5 Including transfers to the Innovation Fund. 6 Agricultural health insurance institutions. 7 Including the difference compared with the transfers recorded by the health fund as well as the difference between claims and liabilities.

2.1.4 Outlook for 2024 and beyond

Based on the assumptions made by the group of SHI estimators in the autumn of 2023, the SHI scheme is expected to post a deficit of €4 billion in 2024. This will be fully attributable to the health fund. The fund will transfer just over €2½ billion to the health insurance institutions from its reserves in order to limit the increase in supplementary contribution rates. Moreover, the health insurance institutions will receive €½ billion from these reserves for improvements in the areas of obstetrics and paediatrics. Finally, the health fund is likely to pay €1 billion from its liquidity reserve to the Innovation and Structural Funds.[9] The health insurance institutions will post a broadly balanced result: expenditure should be up by 6 % on the estimated annual result for 2023, due in part to lagged inflationary effects on services charges. On this basis, the Federal Ministry of Health calculated a notional supplementary contribution rate of 1.7 % to cover expenditure, which is 0.2 percentage point higher than previously.

From today’s perspective, the result for 2024 is likely to be perceptibly worse, however, especially among the health insurance institutions. At the start of the year, the average supplementary contribution rate rose to the level determined by the Federal Ministry of Health as covering expenditure. However, developments this year are based on the significantly higher than estimated expenditure of the health insurance institutions from last year. If this is extrapolated as a base effect, instead of a balanced result the health insurance institutions will have a deficit of almost €2 billion. Coming in at €6 billion, the deficit for the SHI scheme would then be larger than in 2023.

From 2025 onwards, supplementary contribution rates are set to rise considerably unless this can be counteracted by the announced fundamental reform. Given the larger deficit in 2024, the available reserves would be used up. This alone will put significant upward pressure on the average supplementary contribution rate from 2025 onwards. The announced reform plans for hospitals and GP care would push it up much further still. However, the Federal Ministry of Health has signalled a fundamental reform. It would be important for this reform to rein in the strong trend increase in expenditure.

Finances of the statutory health insurance scheme

2.2 Public long-term care insurance scheme

2.2.1 Surplus in 2023

The public long-term care insurance scheme posted a surplus of almost €2 billion in 2023.[10] In the previous year, it had still been running a deficit of €2 billion.[11] The strong year-on-year improvement in the result is due to three main factors:

At mid-year, the contribution rate rose by 0.35 percentage point to 3.4 %.[12] Overall, this led to additional revenue of €3 billion.
Coronavirus-related expenditure fell considerably, by just over €4 billion (to €½ billion), while special funds from central government for this purpose decreased less significantly (by €2½ billion). This eased pressure on the finances of the long-term care insurance scheme to the tune of just over €1½ billion compared with 2022.
The transfers to the long-term care provident fund in the amount of €1½ billion were not made (these will be made up in 2024).

At the end of the year, the long-term care insurance scheme repaid €½ billion to central government. It thus paid back half of a central government loan granted in 2022. Overall, liquid funds were up to €7 billion at the end of the year; due to the repayment, this growth was a little less strong than had been envisaged based on the surplus. Liquid funds equated to around 1.4 times the scheme’s average monthly expenditure (around €2 billion above the lower limit).

2.2.2 Strong growth in revenue

Contribution receipts increased very steeply, by 11½%. This was largely due to contribution rates being raised at mid-year. After rough adjustment for this, contribution receipts still saw strong growth of 5½%. Social contribution-exempt inflation compensation bonuses continued to dampen the increase in the contribution base. Special grants from central government from the previous year were largely absent, however (-€2½ billion). Total revenue thus went up by 5½%.

2.2.3 Total expenditure curbed by non-recurring effects

The long-term care insurance scheme’s regular expenditure on benefits continued to rise sharply, climbing by 9½% and thus by much more than the contribution base. Of the regular expenditure on benefits, spending on inpatient care, a major item, saw continued strong growth (10 %). Cash benefits also expanded steeply (9 %), with benefit rates unchanged. Looking beyond regular expenditure on benefits, the fact that pandemic-related payments had largely ceased significantly eased financial pressures. In addition, the scheme deferred to this year transfers to the long-term care provident fund following the decision of central government (-€1½ billion). Overall, expenditure fell by 1½%.

2.2.4 Outlook for 2024 and beyond

In 2024, the long-term care insurance scheme is likely to largely exhaust its surplus. The contribution base is likely to see substantial further growth, according to the Federal Government’s Annual Economic Report. On top of this, the contribution rates did not rise until the middle of last year. This means that additional revenue amounting to just over €3 billion year on year is expected once again. The core area reducing its regular transfer to the long-term care provident fund and the annual central government grant of €1 billion at the same time being cancelled will have a neutralising effect in the scheme's finances. However, the long-term care insurance scheme will catch up on the €1½ billion payment to the provident fund that it had deferred last year. Moreover, core expenditure is likely to see continued robust growth. This is mainly because of the last long-term care reform, which expanded benefits overall.[13]

The regular dynamic adjustment of benefits and, increasingly, demographic developments will put pressure on the long-term care insurance scheme’s finances in the years to come. As a result, the contribution rate is likely to carry on being raised significantly in increments. However, the Federal Ministry of Health has announced a comprehensive reform for the spring. As in the case of the SHI scheme, it would make sense for the long-term care insurance scheme to rein in the strong trend increase in expenditure. At the very least, it needs to be possible to understand what costs for persons subject to contributions – costs in the form of higher contribution rates – are tied to benefit expansions. This would need to be disclosed transparently by means of longer-term projections.

Finances of the public long-term care insurance scheme

List of references

Federal Statistical Office (Destatis) (2024), New orders in manufacturing in January 2024: − 11.3 % on the previous month, press release of 7 March 2024.
German Chamber of Commerce and Industry (Deutsche Industrie- und Handelskammer, DIHK) (2024), The poor sentiment among companies is solidifying, press release of 15 February 2024.
Deutsche Bundesbank (2023a), Public finances, Monthly Report, December 2023, p. 8.
Deutsche Bundesbank (2023b), Public finances, Monthly Report, March 2023, pp. 15 f.
Deutsche Bundesbank (2023c), Public finances, Monthly Report, March 2023, p. 16.

According to surveys conducted by the German Chamber of Commerce and Industry (DIHK), the surveyed firms increasingly report that the economic policy framework is a business risk. Most recently, almost 60 % of them responded in this way. In its press release, the DIHK reported that "growing bureaucracy, excessive regulation, and the lack of economic policy impulses" are the areas where the firms taking part in the survey express most concern.
Seasonal adjustment here and in the remainder of this text also includes adjustment for calendar variations, provided they can be verified and quantified.
According to data from the German Association of the Automotive Industry, however, the number of passenger cars manufactured rose again somewhat in February.
According to a press release of the Federal Statistical Office, this is due to a sharp rise in large orders in December, which then returned to their average level in January.
The annual rate of consumer inflation according to the national Consumer Price Index dropped from 2.9 % to 2.5 %.
See also Deutsche Bundesbank (2023a). Deficit here excluding inflows from the central government loan.
Preliminary accounting figures for 2023 compared with the final annual outturn for 2022 (see table 1.2). By contrast, chart 1.1 shows preliminary figures for 2022 as well.
In 2023, central government granted a loan of €1 billion to finance the deficit. The resulting liability of the fund was recorded as reducing reserves.
The group of SHI estimators does not take account of these transfers to the Innovation and Structural Funds in its figures on the balance.
Preliminary figures. This refers to the core area, i.e. excluding the long-term care provident fund. In most years since 2015, this fund has received transfers from the core area. Up to 2022, these corresponded to receipts of 0.1 percentage point of the contribution rate applicable in that year. No transfers were made in 2023, and these 2023 transfers will be made up in 2024. Regular transfers from 2024 will be cut significantly until 2027. Assets accumulated in this way are to be depleted in the 2030s to dampen the expected rise in the contribution rate. At the end of 2023, these accumulated reserves amounted to €11 billion.
Preliminary accounting figures for 2023 compared with the final annual outturn for 2022. By contrast, chart 1.2 shows preliminary annual figures.
The general contribution rate applies to persons subject to contributions who have one child. Childless people pay a higher contribution, which rose more strongly to 4 %. By contrast, the contribution rate for insurees with a particularly large number of children (five or more children under the age of 25) was lowered and now stands at 2.4 %. For more on this and other elements of the legislative change, see Deutsche Bundesbank (2023b).
For more details, see Deutsche Bundesbank (2023c).

Demand for banknotes during crises: an international perspective Monthly Report – March 2024