Wachstumskurve mit Kugelschreiber symbolisiert die wirtschaftliche Lage.

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  • The German economy proved resilient in the first half of the year. Despite the war in Ukraine and the resulting sharp rise in energy prices, the economy grew slightly again in the second quarter (+0.1%).
  • However, the outlook for the second half of the year has become distinctly gloomier. German economic output is likely to stagnate or decline in the second half of the year.
  • The industrial sector suffered a setback at the beginning of the second half of the year. In the month of July, both industrial output and new orders declined. The outlook for the industrial economy is subdued.
  • Retail sales recovered in July. However, given the sharp price increases, consumer sentiment continued to decline.
  • The inflation rate increased again in August to around 7.9%. The dampening effect of the fuel discount and the nine-euro public transport ticket will disappear in September.
  • In spite of the global uncertainties, the labour market is proving robust for the time being. Leading economic indicators have stabilised and demand for labour remains at a high level.
  • For the first quarter of 2022, German district courts reported a total of 7,113 corporate insolvencies filed, 4% fewer than in the first quarter of 2021. Current leading indicators and surveys point to rising figures in the second half of the year, but a "wave of insolvencies" is not currently in sight.

Business sentiment in Germany has deteriorated significantly. In July, almost all indicators developed negatively. Industrial output fell, especially in the energy-intensive sectors. New manufacturing orders declined for the sixth time in a row. Foreign trade also saw only weak growth, with exports declining slightly more than imports. On the favourable side, real retail sales grew slightly, though they cannot compensate for the declines seen in recent months.
Overall, the energy price shock resulting from the reduction in Russian gas supplies is increasingly having an impact across all sectors of the German economy. Many companies and consumers expect prices for electricity and gas to continue to rise. While it is unlikely that there will be any physical rationing of gas in the winter, high prices are making many production processes unprofitable and demand for manufactured products is falling. The inflation rate, which according to preliminary calculations was 7.9% in August, is likely to rise again in September because the reduction in the fuel tax and the nine-euro public transport ticket will then no longer have a dampening effect on prices.

There are, however, some initial signs that global supply chains are beginning to see some light. The number of companies complaining about a shortage of materials fell significantly in August. Container freight rates are also gradually declining. However, this may be due to the slowdown in the global economy and therefore cannot be seen exclusively as positive news.

After a robust first half-year, the German economy is thus facing a difficult second half of 2022. It has become easier to cope with the complete cessation of gas deliveries via Nord Stream 1 compared to a few months ago, as other suppliers have stepped in and demand has responded to the higher prices, so that Germany’s gas storage facilities are now well-stocked. At the same time, the high gas prices result in welfare losses for Germany, as the terms of trade of the German economy have deteriorated significantly. Against this background, it cannot be ruled out that economic output will stagnate or decline in the second half of the year.

The hard indicators on the global economy only become available with a delay of three months. In June, global industrial output was still on an upward trend at +1.2% month on month, even though world trade was already stalling at that time (rate of change: -0.1%). The latest indicators of sentiment suggest a further slowdown of the global economy. The index from S&P Global (formerly IHS Markit) fell below the 50-point growth threshold for the first time since the spring of 2020 when the world was in the midst of the first wave of the coronavirus pandemic. The decline in the service sector was even slightly higher than that in the manufacturing sector. The survey respondents anticipate a difficult global economic environment in the coming months.

Nominal exports of goods and services dropped in July by 2.2% month on month in seasonally adjusted terms. Nominal imports of goods and services also declined. Compared with June, they were down 0.6%. However, due to the upturn in foreign trade in recent months, it is declining from a high level. The three-month comparison, which is less affected by volatility, still clearly shows positive growth for both exports and imports.

It is also interesting to note that, for the first time in seven months, export prices increased slightly more than import prices. As energy is almost entirely imported from abroad where large price increases were observed as a result of the RUS-UKR conflict, Germany has suffered from spiralling import prices and worsening terms of trade in the first half of the year. The overall current account balance in the period from January to July was only around half that in the previous year.

The outlook for foreign trade remains mixed. The indicators currently paint a mixed picture.

  • On the one hand, the supply bottlenecks that have weighed on the global economy are starting to ease as it recovers from the coronavirus crisis. Container freight rates are gradually decreasing. In addition, in an ifo survey on the shortage of materials in industry, only 62% of the companies questioned said they were still affected by bottlenecks. This is the lowest level in over a year.
  • On the other hand, the easing supply bottlenecks could also be a sign that demand is softening in the face of slower economic growth. Over the next few months, the energy price shock will gradually ripple through the national economy. Contractual price guarantees on favourable terms are gradually being replaced by new contracts, which are often significantly more expensive. It remains to be seen how this will affect production in Germany’s export-oriented industry. Irrespective of this, ifo export expectations fell to a 5-month low in August.

The current weakness of the euro also has far-reaching implications for German foreign trade. Since the beginning of the year, the euro has depreciated by about 12% against the US dollar, reaching parity. In principle, a weak euro makes German exports cheaper abroad, which creates new international sales opportunities for companies based here. However, oil, for example, is mainly traded in dollars, which is why a weak euro further increases the high energy prices in Germany. Overall, the weak euro is a double-edged sword for the German economy.

Output in the manufacturing sector rose slightly by 0.3% between June and July. Industrial output decreased by 1.0% month on month. Output of consumer goods, in particular, decreased significantly (-2.4%). Construction output grew by 1.4%. There was noticeable growth of 2.8% in the energy sector. Development in the energy-intensive manufacturing sectors was below average.

After a strong increase in the previous month, the important sector of vehicles and vehicle parts again experienced a decrease (-4.6%). The mechanical engineering sector also reduced its output (-1.5%). Declines in output, some of them substantial, were recorded for the chemical industry (-2.2 %), metal production and processing (-0.6 %), manufacture of glass, glassware and ceramics (-0.9 %), and paper and cardboard (-4.3 %), all of which are particularly energy-intensive sectors in relation to their value added. The food and animal feed sector also declined sharply (-4.2%). Positive impetus for growth came from the areas of data processing equipment (+2.9%) and electrical equipment (+2.0%).

New manufacturing orders saw a month-on-month decline of 1.1% in July (seasonally adjusted). This has been the sixth decline in succession which is due to the Russian war of aggression against Ukraine. Excluding large-scale orders, new orders fell by 0.8% against the previous month. Overall, orders were therefore 13.6% lower than the previous year’s level.

The main reason for the month-on-month decline in July was a decline in orders for capital goods and, above all, consumer goods (-0.2% and -16.9%, respectively). By contrast, producers of intermediate goods reported growth of 1.5%. Domestic orders dropped by 4.5%. Overall foreign demand increased by 1.3%, with orders from outside the eurozone rising by 6.5% while orders from the eurozone were down by 6.4%.

Industry got off to a weak start in the third quarter. The high energy prices are continuing to put a burden on businesses and are slowing down the economy. According to company surveys, shortages of materials have eased somewhat recently, but there is still no sign that the shortage will be eliminated any time soon. Recent indicators point to weaker demand in the manufacturing sector, and reduced gas deliveries from Russia coupled with a high level of uncertainty as a result of the war further dim the outlook for the remaining year.

Retail sales (excluding vehicles) increased by 1.9% month on month in July, following a decline of 1.5% in June. Thus, they were 2.6% below their pre-year level, according to the latest figures, largely due to the high increases in the retail price level. In nominal terms – i.e. unadjusted for prices – turnover grew by 6.1% over the year. Food retailing recorded a month-on-month increase of 2.1% in July in real terms (-4.4% down on the same month the year before). Trade in textiles, clothing, shoes and leather goods registered a slight increase of 0.6% (+0,2 % on the same month the year before). Following a weak performance in June, online and mail-order trade recorded significant growth of 9.2% in July (+5.1 % year-on-year). Turnover at filling stations increased by 1.3% in July and, as a result of the reduction in fuel duty, experienced strong growth of 7.5% year on year. The number of new registrations of passenger cars by private owners in August rose significantly and were up 13.2% month on month, following increases in the two previous months (July: +1.1%, June: +2.6%; May: +5.9%).

According to the GfK Consumer Climate Survey, consumer confidence continues on a downward trend. It is expected that there will be a further decline to a new historic low in September. In August, the ifo figures for business expectations in the retail sector brightened slightly. However, the balance of the figures reported remains at a very low level.

According to preliminary figures of the Federal Statistical Office, the inflation rate, i.e. the development of the price level over the year, rose again and is expected to be 7.9% in August. This corresponds to an increase of 0.4 percentage points compared with the previous month (July: +7.5%). In May, the rate already stood at +7.9%, reaching its highest level since the winter of 1973/74 at the time of the first oil crisis. The level of consumer prices is expected to have risen by 0.3% over the preceding month. The final figures for consumer prices were not available when this report was completed.

The main driver of the high inflation rate continues to be the spiralling inflation in energy costs (+35.6%, July: 35.7%) associated with Russia’s war of aggression. However, in August, there was also a sharp rise in food prices. It hit a new post-reunification record, at +16.6% year on year (previously: +14.8%). The core inflation rate (excluding energy and foodstuffs) was +3.5% in August, well below the overall figure. Upstream price increases put upward pressure on food prices, in particular. In July, producer prices rose by +37.2% in year-on-year terms, representing the highest rate since the survey was started in 1949. This increase is mainly due to the upward trend in energy prices. Energy prices are expected to remain under strong pressure in the coming months and inflation rates are therefore expected to remain high for the foreseeable future.

Since June, the nine-euro public transport ticket and the reduction in fuel duty have had a dampening effect on inflation. Since both relief measures expired at the end of August, there will be a countervailing effect driving prices up in September. According to estimates by the Deutsche Bundesbank, it is likely to amount to about one percentage point which, in itself, would noticeably increase the inflation rate. The abolition of the EEG surcharge in July continues to have a dampening effect on prices.

The labour market continues to be comparatively robust, even though refugee migration from Ukraine is again having a significant impact on unemployment. In August, unemployment grew noticeably, up by 28,000. As in previous months, the increase is mainly attributable to refugee migration from Ukraine. Ukrainian refugees have been included in the German social security system since June. Therefore, the number of unemployed persons under SGB II rose more strongly, by 25,000 in August (seasonally adjusted). The increase under SGB III is significantly lower (+3,000 seasonally adjusted). According to the unadjusted figures, registered unemployment rose by 77,000 to 2.55 million people. However, the number of persons registered as unemployed was still 31,000 lower than in the same month last year. The positive trend in gainful employment and jobs subject to social security contributions is continuing. Gainful employment grew by 23,000 in July (seasonally adjusted). According to the unadjusted figures, there were 45.6 million people who were gainfully active, which is a year-on-year increase of 571,000. Employment subject to social security contributions also increased by 27,000 in June. The number of people on short-time work continued to decline to around 0.26 million in this month. Leading economic indicators have stabilised and demand for labour remains at a high level. However, the influx of refugees is expected to lead to a further increase in registered unemployment in the coming months. If there are more severe macroeconomic impacts, they are likely to have a delayed impact on the labour market. The instrument of short-time work is expected to cushion an increase in cyclical unemployment.

The downward trend in corporate insolvencies over the past two years continues, while the figures reported so far in 2022 remain below the previous year’s level. According to the final data provided by the Federal Statistical Office, German district courts reported a total of 7,113 corporate insolvencies filed. This was four percent less than the figure reported in Q1 2021 (-21% down from Q1 2020).

As an early indicator, the number of regular insolvencies filed gives an indication of the future development of corporate insolvencies. According to preliminary data from the Federal Statistical Office, the downward trend seen most recently in June (-7.6%) and July (-4.2%) did not continue in August (+6.6% over the previous month). Experts of the German Economic Institute (IW) in Halle expect the number of insolvencies to rise again in the further course of the year; however, a "wave of insolvencies" is not currently expected. However, the implications of the war in Ukraine and the sharp rise in energy prices are a major burden for many companies and it is difficult to assess its impact on future insolvencies over the course of the year.


1The report is based on data that were available as of 12 September 2022. Unless stated otherwise, these are rates of change against the respective preceding period on the basis of price-adjusted figures which have also been adjusted for calendar-day and seasonal variations.