Germany: GDP shrinks again in Q4
Economy disappoints markets: According to a preliminary reading, Germany continued its pattern of swinging in and out of the doldrums at the tail end of 2024, shrinking 0.2% on a seasonally adjusted quarter-on-quarter basis in Q4 (Q3: +0.1 qoq s.a.). The decline was sharper than markets had anticipated and was again the weakest among the Euro area’s large economies.
On an annual basis, economic activity dropped 0.4% in Q4, swinging from the previous period’s 0.1% growth. As a result, the economy contracted for the second consecutive year overall in 2024, falling 0.2% (2023: -0.3% yoy).
External demand remains the main drag on the economy: While not providing a complete breakdown, the statistical office noted that Germany’s quarterly downturn reflected a sharp decline in exports of goods and services. More positively, private and public spending continued to expand in the quarter. Monthly data bears this out, as goods exports fell at a steeper sequential pace in October–November from the prior three months than in Q3 from Q2. Meanwhile, retail sales rose from Q3’s average in the same two-month period, likely bolstered by healthy real wage growth through November and ongoing monetary easing.
A complete breakdown of the GDP figures will be released on 25 February.
Economy to gain traction but remain subdued: Our panel expects the German economy to post an improved reading in Q1 2025, as domestic demand benefits from sturdy real wage growth and laxer financing conditions. Growth will then pick up, but a protracted malaise in the key industrial sector will keep momentum below trend overall in 2025, and the economy should remain the worst-performing in the G7. The outcome of the February elections is a factor to monitor, although regardless of the outcome, policy changes are likely to be slow and should have no more than a limited impact on the key structural issues dragging on the economy. Stronger-than-expected U.S. protectionism under President Trump is a downside risk.