The rise in German economic output in the third quarter of 2024 came as a surprise. The outlook remains poor, however. According to the flash estimate of the Federal Statistical Office, seasonally adjusted real gross domestic product (GDP) rose by 0.2 % on the previous quarter. 1 This exceeded earlier expectations, 2 but the decline in GDP in the second quarter was revised from 0.1 % to 0.3 % at the same time. Economic output thus remained weak overall in the summer half-year. Moreover, it is difficult to derive an improvement to the underlying cyclical trend from the GDP increase in the third quarter. According to the Federal Statistical Office, this was mainly driven by rising government and private consumption expenditure 3 and given the mixed picture of indicators for private consumption, it is likely that this rose only slightly. Thus, at the current time, none of the key demand components give any cause to expect a marked short-term recovery in the German economy. Private consumption benefited from the steep rise in wages in the third quarter but the labour market is becoming increasingly gloomy and the high level of consumer uncertainty – which is probably partly a result of this – is likely to have dampened its growth. Exports, as well as output in the industrial sector and in construction, continued to decline. The still elevated financing costs and pronounced economic policy uncertainty continued to weigh on investment and thus on demand for construction and capital goods. In addition, the now low capacity utilisation makes investment in the industrial sector more difficult. In view of German industry’s deteriorating competitive position, no growth impetus came from the expanding German sales markets abroad. The industrial sector is under high pressure to adapt to changing structural conditions at domestic production sites and in global markets.

Industrial output and exports of goods continued to decline. After seasonal adjustment, industrial output fell strongly in September. Taking the average of the third quarter, it contracted significantly compared with the previous quarter, with the decline affecting most sectors. Production in energy-intensive sectors was down as well, following two quarters of rising output. The ongoing weakness in demand for German industrial products is likely to have been the key cause in the overall decline in industrial output. According to surveys conducted by the ifo Institute, the already severe lack of orders continued to worsen. Only a few sectors experienced an increase in output. Other vehicle construction and the repair and installation of machinery continued on an upward trajectory, for example. The manufacture of motor vehicles edged up slightly as well. In line with weak industrial activity overall, exports of goods also decreased again in the third quarter. The fact that German industry profited so little from the quite strong growth in global trade in the summer half-year is likely to be mainly due to the fact that its competitive position outside and within the EU has deteriorated considerably in recent years. 4 The industrial sector is faced with a difficult environment and is under high pressure to adapt to changing structural conditions at domestic production sites and on global markets. It needs to adjust to the longer-term impact of the energy price shock triggered by the Russian war of aggression against Ukraine, as well as cope with numerous other challenges, such as the green transition to carbon-neutral production methods, demographic change or increasing competition from emerging economies such as China. The German automotive industry is particularly affected by this structural change (see the supplementary information “Recent developments in Germany’s automotive industry”).

Commercial investment in machinery and equipment is likely to have fallen in the third quarter. This is indicated by the domestic sales of capital goods producers, which in price-adjusted terms declined significantly compared with the previous quarter. Price-adjusted capital goods imports (available up to August) also point in this direction. Elevated financing costs and heightened economic policy uncertainty continued to weigh on investment. The fact that industrial utilisation rates have been low for some time now is also likely to have contributed to the weak investment activity. According to surveys conducted by the ifo Institute, capacity utilisation has been declining since October 2022 and is now quite significantly down on its long-term average. This is a clear reflection of the persistent lack of demand.

Construction investment and construction output continued to suffer from weak demand. Construction investment is likely to have continued to decline in the third quarter. Seasonally adjusted construction output fell again compared with the previous quarter. Output in building construction contracted particularly sharply, but it was down in the finishing trades and civil engineering sectors, too. Nominal construction sales up to August indicate that housing investment, in particular, decreased further. By contrast, taking the average of July and August, sales in industrial and public construction and in road construction were up on the previous quarter. The construction sector continues to struggle with weak demand for construction work. Averaged over July and August, new orders in the main construction sector rose significantly compared with the previous quarter. Compared with levels seen during the phase of low interest rates (roughly the fourth quarter of 2021), they were still very muted, however. This was due to building construction, where demand has also recently declined in quarter-on-quarter terms. By contrast, new orders in civil engineering were again above the level of the end of 2021. In housing construction, in particular, the still elevated financing costs continue to have a negative impact.

Private consumption and probably also service providers bolstered the economy in the third quarter. The steep rise in wages contributed positively to consumption. However, it is likely that consumers have been reluctant to make use of their additional spending leeway. This appears reasonable in the light of the now noticeable cooling in the labour market and is supported by mixed signals from the indicators for private consumption. The GfK consumer climate improved, albeit from a low level. The number of new passenger car registrations went down according to the German Association of the Automotive Industry (VDA). Price-adjusted sales in the hotel and restaurant sector, which averaged across July and August were lower than in the previous quarter, are another indicator of weak consumption. By contrast, real retail sales showed a positive development. In the third quarter, they were clearly up on the previous quarter. Private consumption is thus likely to have provided only little impetus to the services sector as a whole. Weak industrial activity also impacted the services sector. Price-adjusted wholesale sales dropped significantly compared with the previous quarter. The production index which, taking the average of July and August, was slightly higher than in the previous quarter, provided a positive signal for the services sector. Service providers are therefore likely to have supported economic activity overall.

The protracted economic weakness also reached the hitherto very robust labour market in the third quarter. Employment declined slightly from its previous record highs. Strong sectoral differentiation continued. The number of jobs in manufacturing and trade fell. By contrast, labour demand for services remained high, although in some segments employment was likewise increasing at a slower pace than previously. Unemployment continued to climb. While short-time work has increasingly been made use of in manufacturing for some time now, it still plays no major role in the overall economy. The outlook remains muted. According to leading indicators, there will be neither a significant improvement or a major deterioration in the labour market situation in the coming months.

Germany’s working population declined on the quarter. On an average of the summer months, the seasonally adjusted number of employed persons was down by 45,000 compared with the second quarter of 2024. Total employment was thus down by 0.1 %. With the publication of total employment data on 30 October 2024, the months since the beginning of 2024 have also been revised by the Federal Statistical Office. In particular from June 2024 onwards, employment has been revised downwards, which means that employment dynamics have now turned slightly negative and the level of employment is just over 0.1 % or 70,000 persons lower. 5 This means that the labour market is somewhat weaker than before. According to data available up to August, the number of people in exclusively low-paid part-time work fell markedly. The declining trend in self-employment has continued for some time now. By contrast, the number of jobs subject to social security contributions was relatively stable.

Staff cutbacks are confined to certain sectors, albeit important ones. In the manufacturing sector, which is particularly exposed to international competition and structural change, firms have already been moderately reducing jobs subject to social security contributions for some time now. This decline accelerated somewhat. So far, staff levels are likely to have been reduced mainly through normal fluctuation, by replacing fewer employees. The adjustment in temporary employment, where many employees were employed in the manufacturing sector, was significantly stronger. Core staff could thus often be retained in spite of declining industrial output. However, the options to use temporary employment will be fewer and fewer in future, as this adjustment channel has already been deployed very frequently. Staffing levels in construction and trade were likewise down moderately. The maximum level of employment now appears to have been reached in the hotel and restaurant services after the pandemic, with the headcount down somewhat recently. There was hardly any expansion in the previously strongly growing information and communication sector and business services. By contrast, quite vigorous hiring activity was still being seen in the health and long-term care sector, education, the public sector, energy and water supply and the financial sector. Labour demand in these areas is benefiting significantly in some cases from demographic change and decarbonisation.

Still only moderate uptake of short-time work for economic reasons. This instrument is primarily used to bridge temporary cyclical falls in demand. However, many firms are complaining of structural difficulties. Furthermore, the relatively restrained use is likely due to the fact that access criteria have not been eased, as was the case during the pandemic or the 2008‑09 economic and financial crisis. In addition, the enterprises registering are required to cover the costs of short-time workers’ social security contributions for the hours not worked. Only the manufacturing sector saw a slightly higher uptake, with 2.5 % of all employees subject to social security contributions affected in July. Short-time work was virtually non-existent in the rest of the economy.

Immigration from other EU countries is increasingly stabilising employment subject to social security contributions, which has risen until recently. As the labour supply in the domestic population and thus also the number of employees with German nationality is falling for demographic reasons – in August 2024, there were 160,000 fewer employees subject to social security contributions than in the previous month – more and more immigrants are filling this gap. Net immigration from other EU member states has now also come to a standstill this year. This type of labour market-oriented immigration – often from the east-central European acceding countries – played a prominent role in employment growth in Germany in the 2010s. Compared with the previous year, however, its contribution to growth in employment subject to social security contributions has now fallen to zero. In the current subdued labour market conditions, it is thus mainly immigrants from third countries compensating for the significant decline in the domestic labour force. Here the number of employees subject to social security contributions was up by 284,000 compared with the same month of the previous year. 6 In addition to the simplifications for labour market-oriented immigration that have been in force for several months under the Skilled Immigration Act (Fachkräfteeinwanderungsgesetz) – no data on their impact are available yet – it is also worth mentioning the extent to which refugees already resident in the country are being integrated into the workforce. In the case of Ukrainian refugees, in particular, the previously very low transition rate from unemployment to employment has improved significantly since the beginning of the year. 7 Nonetheless, monthly transitions of 6 % of unemployed asylum seekers and just under 4 % of unemployed Ukrainians to the primary labour market show that the pace of integration is still slow.

Registered unemployment saw a further slight uptick. In the third quarter, an average of 2.81 million persons were unemployed when viewed on a seasonally adjusted basis, or around 52,000 persons more than in the second quarter of 2024. This pushed up the unemployment rate by 0.1 percentage point to 6.0 %. In October, the ranks of the unemployed were swelled by a further 27,000 people compared to the previous month, taking the unemployment rate to 6.1 %. In recent months, there has been a particular increase in the number of unemployed persons covered by the statutory unemployment insurance scheme, which is subject to cyclical influences.

Employment could see a further moderate decrease over the next few months. In particular, the ifo Institute’s employment barometer dipped further into negative territory in recent months; this barometer is based on surveys of businesses’ personnel plans. At the same time, these surveys reveal the high degree of heterogeneity across sectors. Sentiment is especially low in the manufacturing and trade sectors. The ifo Institute’s surveys provide less coverage of sectors rendering basic public services, which have seen the largest growth in their staff levels up to the current end. The employment component of the IAB’s labour market barometer for the economy as a whole thus paints a more positive picture, as it implicitly includes these areas. The number of vacancies reported to the Federal Employment Agency recently stabilised after a long decline. Unemployment is likely to continue rising slowly. The unemployment component of the IAB’s barometer showed another slight setback in October and is in moderately negative territory.

Negotiated wages saw a very strong increase in the third quarter. Including ancillary agreements, they went up by a substantial 8.8 % on the year in the third quarter, compared with 3.1 % in the previous quarter. This is the highest year-on-year growth rate since the summer of 1993. It was mainly driven by very steep negotiated wage adjustments in the retail sector as well as in wholesale and foreign trade. These sectors negotiated high permanent wage increases, back payments and an inflation compensation bonus. Even disregarding these special payments and looking exclusively at basic remuneration levels, negotiated wages went up by 5.6 % year on year in the third quarter, once again outpacing the second-quarter increase of 4.3 %. The phase of very high wage increases may have peaked in the third quarter, however.

Actual earnings also look to have increased substantially. This is indicated by the gross monthly earnings obtained from the Federal Statistical Office’s earnings survey, with published data available up to and including September 2024. 8 These earnings actually grew slightly more strongly still than in the second quarter, when actual earnings had gone up by more than 5 %, an increase which remained well above average in the long term.

Wages rose more sharply in services than in manufacturing. This likely also reflects the ongoing shortage of skilled workers in the services sectors. 9 Services workers have now largely recovered the losses in real wages that they suffered as a result of surging inflation. In the manufacturing sector, however, real wage losses since 2021 have not been fully made up.

High wage demands are currently coinciding with a weak economic setting. The trade unions’ current wage demands range from 7 % (rubber and plastics industry) to 19 % (system catering) for a term of 12 months. They are relatively high because, now that inflation compensation bonus payments have ceased, the trade unions are seeking to offset the losses in purchasing power that have occurred in recent years by securing permanent wage increases. In the central and local government areas of the public sector, for example, the trade union ver.di is demanding a permanent wage increase of 8 %, or at least €350, for a term of 12 months. 10 However, the recently agreed wage increase in the metals and electrical engineering industry was fairly moderate, at 2.2 % per annum, given the strong deterioration in that sector’s economic situation. The agreement in this key industrial sector could act as a signal for other industrial sectors. Overall, given the prolonged period of economic weakness and significantly lower inflation rates, the other forthcoming wage negotiations are expected to result in distinctly lower agreements than in the past two years.

Consumer prices did not rise as sharply as before in the third quarter. Measured in terms of the HICP, they rose by a seasonally adjusted 0.3 % in the third quarter, only around half as much as in the previous two quarters. Energy prices actually saw a marked drop. This was primarily true of refined petroleum products, which reflected the lower oil prices but also the appreciation of the euro and probably dampened profit margins. In the case of gas and electricity tariffs, previous declines in the relevant market prices were likely also passed on to consumers. Services price inflation came down a little, yet remained unusually high. Food price inflation even intensified again. There was a significant increase in the cost of dairy products as well as fruit and vegetables, in particular. For non-energy industrial goods, the slight price decline recorded in the previous quarter did not continue, but the price rise was no more than moderate and not nearly as strong as in the previous year. Year-on-year upward price pressures also subsided. The headline inflation rate dropped from 2.6 % to 2.2 %. 11 This was due not only to the declining energy prices in the third quarter of 2024, but also to a dampening base effect caused by the rise in energy prices in the third quarter of 2023. By contrast, the core rate excluding energy and food (3.1 %) remained almost as high as in the previous quarter (3.2 %).

Inflation was significantly higher again in October, which was not solely due to a base effect for energy. In October, consumer prices increased significantly in seasonally adjusted terms. Energy prices went up again as crude oil prices were higher. Food prices also rose more sharply again given another significant hike in the prices of dairy products as well as fruit and vegetables. Travel services were much more expensive than in the previous month, which was reflected in the prices of services as a whole. However, even excluding volatile travel prices, inflation in services remained above average. Rents continued to rise somewhat more strongly than the historical average. 12 By contrast, the moderate price growth of the previous month continued for non-energy industrial goods. Annual headline inflation was up significantly, from 1.8 % to 2.4 %. 13 This was partly because energy prices came down markedly in October 2023, which was reflected as a base effect in inflation in October 2024, driving up the rate. The core rate likewise went up considerably from 3.0 % to 3.3 %. However, factoring out the volatile prices of travel and also clothing, the rate remained virtually unchanged at 3 %.

Inflation is expected to be somewhat higher still for a time. Energy prices fell significantly at the end of 2023. Viewed in isolation, this downward movement in the base year will push up inflation in the coming months, as the gap between current prices and prior-year prices widens. As a result, the inflation rate is likely to go up somewhat further still for a temporary period. This will be all the more relevant when base effects also dampening the core rate cease to apply – in this case, prices of travel services fell considerably in the previous year. At the beginning of next year, one-off effects will also have a price-driving effect. These include the price rise for the “Deutschlandticket” and probably also substantial increases in private health insurance tariffs. Without these one-off effects, the core rate is likely to gradually trend downwards. The strong wage growth in 2024 will keep inflation high, however, especially for services.

The lull in activity in the German economy is likely to persist in the fourth quarter as well. Industry and construction are likely to remain a drag on economic output. Factors weighing on the propensity to invest, such as high uncertainty, financing costs that are still relatively high, and low capacity utilisation in industry, remain in place. Foreign demand for German industrial products is still weak, even if a recovery is imminent here. According to ifo Institute surveys, the share of firms in the main construction sector reporting a shortage of orders remained high in October, and equipment utilisation declined again slightly on the previous quarter. The labour market will probably continue to cool, with moderately declining employment and a slight rise in unemployment. Nevertheless, private consumption could expand again somewhat, as the substantially higher wages offer further scope for additional consumer spending. Consumers remain unsettled, however, and will probably make only tentative use of their additional scope for spending. All in all, economic output could be more or less stagnant in the fourth quarter.

Private consumption and 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. 14 In October, income expectations and the propensity to purchase increased in particular. The GfK consumer climate index forecast for November improved, but remained at a low level. Impetus could come from car purchases. Private vehicle registrations saw a steep rise in October compared with the previous month and the average of the previous quarter, according to data from the German Association of the Automotive Industry. Surveys conducted by the ifo Institute are delivering mixed signals for consumer-related services. While business conditions improved in the retail sector, they deteriorated in accommodation and food services. However, the services sector as a whole is likely to continue to support the economy. The business situation as surveyed by the ifo Institute improved markedly in this context.

Industry is unlikely to gain momentum in the fourth quarter either. Demand for German industrial products still tends to be weak. Averaged over the third quarter, industrial new orders significantly outstripped those of the previous quarter, but excluding volatile large orders they were actually slightly down on the previous quarter. This is due to a sharp drop in new orders from Germany. However, excluding large orders, order intake from abroad increased for the second quarter in a row, indicating an incipient recovery in foreign demand for German industrial products. In line with the overall weak demand, capacity utilisation in the manufacturing sector declined further in October according to the ifo Institute. The share of firms reporting a shortage of orders also continued to rise. Business expectations were somewhat less pessimistic in October but, equally, a rapid improvement is unlikely seeing as business conditions and export expectations have deteriorated further. Short-term production plans were also below the level of the third quarter, although they improved on the previous month. A first indication of a subdued start to the fourth quarter is also given by the number of cars produced, which was somewhat lower in October than the average of the previous quarter, according to the German Association of the Automotive Industry.

Deutsche Bundesbank (2024a), Commentaries: Economic conditions and Public finances, Monthly Report, October 2024.

Deutsche Bundesbank (2024b), Domestic investment barriers faced by German enterprises, Monthly Report, May 2024.

Deutsche Bundesbank (2024c), Wage developments in Germany: current situation, comparison with the euro area, and outlook, Monthly Report, October 2024.

Deutsche Bundesbank (2024d), On the impact of monetary policy tightening on housing investment in Germany, Monthly Report, July 2024.

Deutsche Bundesbank (2024e), House prices in Germany in 2023, Monthly Report, February 2024, pp. 47‑49.

Eiglsperger, M., I. Ganoulis, B. Goldhammer, O. Kouvavas, M. Roma and A. Vlad (2024), Owner-occupied housing and inflation measurement, Statistics Paper Series No 47.

European Central Bank (2021a), The ECB’s monetary policy strategy statement, 8 June 2021.

European Central Bank (2021b), An overview of the ECB’s monetary policy strategy, July 2021.

European Central Bank (2021c), Inflation measurement and its assessment in the ECB’s monetary policy strategy review, Occasional Paper Series, No 265.

European Central Bank (2020), ECB Listens – Summary report of the ECB Listens Portal responses.

Eurostat (2024), Harmonised Index of Consumer Prices (HICP) – Methodological Manual, 2024 edition.

Eurostat (2023), Owner-occupied housing and the harmonised index of consumer prices: Outcome of the work of the European Statistical System, 2023 edition.

Falck, O. and K. Akash (2023), Green Skills in German Manufacturing, EconPol Policy Brief 55, CESifo.

Federal Statistical Office (2024), Gross domestic product in the 3rd quarter of 2024 up 0.2 % on the previous quarter, press release no 408 of 30 October 2024.

GfK (2024), Konsumklima klettert auf den höchsten Stand seit April 2022, press release of 29 October 2024.

Knetsch, T. A., D. Popova and P. Schwind (2024), HICP and national CPI in Germany: as similar as possible, as different as needed, Deutsche Bundesbank Technical Paper, No 06/2024, forthcoming.

Nationale Leitstelle Ladeinfrastruktur (2024): Ladeinfrastruktur nach 2025/2030: Szenarien für den Markthochlauf, Neuauflage 2024.

Puls, T. and M. Fritsch (2020), An Industry under Pressure: The Importance of the Automotive Industry for Germany, German Economic Institute, IW-Report 43/2020.

Transport & Environment (2024), One in four EVs sold in Europe this year will be made in China – analysis, press release of 27 March 2024.

Wauters, J., Z. Zekaite and G. Garabedian (2024), Owner-occupied housing costs, policy communication, and inflation expectations, National Bank of Belgium, Working Paper No 449.