The German economy recorded slight growth of 0.1% in the third quarter of 2024 compared to the second quarter of the same year. This growth came after a decline of 0.3% in the second quarter, which indicates a weak economic performance in the first half of the year. While expectations indicated a greater improvement, seasonally adjusted data and the calendar showed that growth was below the expected rate.
Compared to the same quarter of last year, there was no significant improvement, as GDP fell by 0.3% after adjusting for prices and the calendar. This highlights the difficulties facing the German economy in light of the global and local economic crises. At the same time, the results of the third quarter showed that the economy is beginning to stabilize after contraction it witnessed at the beginning of year.
Despite these weak figures, the industrial sector in Germany recorded some improvement, especially in certain areas such as construction and automobiles. However, domestic and foreign demand remained weak, which directly affected the movement of production and sales in several sectors. According to the Federal Statistical Office, weakness in foreign markets was one of the factors influencing economic performance, especially in EU countries.
On the other hand, data showed increasing pressure on the labor market as unemployment rates began to rise. These pressures coincide with a reduction in government spending, which affects domestic consumption, which represents a large part of economic activity.
Economists are waiting to see the impact of future government policies on the German economy. At the moment, future growth appears to be modest in light of the unstable global economic conditions, which raises questions about the extent to which Germany can regain economic momentum.
Some estimates expect economy to face additional challenges in the coming months due to global trade tensions.
Gross value added declines in most sectors
In Q3 2024, most sectors saw a decline in gross value added, which fell by 0.2% compared to Q2 after adjusting for prices, seasonality and calendar changes. The manufacturing sector recorded the largest decline, with its value added falling by 1.4%. The most notable declines were in production of machinery and equipment and chemical products. In contrast, the production of motor vehicles and trailers increased slightly, reflecting some relative stability in this sector.
In the construction sector, value added fell by 1.2%, reflecting weak activity in construction projects, which was affected by the prevailing economic conditions. Financial and insurance activities also witnessed a decline of 0.9%, reflecting continued pressure on this sector. The information and communications sector recorded a slight decline of 0.4%, reflecting slower growth in this industry compared to previous performance.
On the other hand, some other sectors saw positive signs. The public services, education and health sectors increased by 1.3%, indicating stable growth in these important areas. Other services also increased by 0.6%, while trade, transport, accommodation and food services sector recorded a slight growth of 0.1%, after declining in the previous two quarters.
These results show a clear divergence in the performance of different sectors. While some sectors such as manufacturing and construction are facing difficulties, service sectors such as health and education have seen improvements. However, given the decline in value added in most sectors, the economy as a whole faces challenges that require an effective response to stimulate growth in the last quarter of the year.
GDP increased year-on-year
GDP in the third quarter of 2024 price-adjusted increased by 0.1% compared to third quarter of 2023. However, after adjusting for price and calendar, GDP data showed a decline of 0.3% as there was one more working day than in the same period last year.
Significant year-on-year decline in capital formation
In Q3 2024, capital formation saw a significant decline year-on-year. Gross fixed capital formation in machinery and equipment fell by 5.7%, mainly due to base effects related to commercial vehicle registrations. Electric vehicles saw a notable increase in Q3 2023, due to the cessation of government assistance in September 2023, which significantly impacted this year’s figures. The construction sector also recorded a 2.6% decline in fixed capital formation, with residential construction performing particularly poorly compared to non-residential construction.
In contrast, final consumption expenditure increased by 0.8% compared to Q3 2023. Although final household consumption expenditure rose slightly by 0.1%, government expenditure saw a significant growth of 2.5%. This was due to higher social benefits in kind provided by local governments and social security funds, which helped support public consumption. Thus, despite the decline in capital formation in key sectors such as machinery and equipment and construction, government consumption spending contributed positively to boosting economic activity. This shows that government policies continue to have an impact on economic activity, despite the challenges facing some sectors.
On a year-on-year basis, exports of goods and services decreased by 0.3% (price-adjusted) in Q3 2024. There was a decline in exports of goods (-0.6%), especially machinery and data processing equipment and metal products, while exports of services increased by 1.0%. The latter was primarily due to increased revenues in the telecommunications services and information services activities sectors.
In contrast, total imports increased by 1.2% during the same period. Although imports of goods decreased by 0.3%, including imports of motor vehicles, trailers and semi-trailers, as well as machinery, imports of services increased significantly by 4.4%. This increase was attributed to increased spending on transportation services.
Final consumer spending up on quarter, exports down sharply
German final consumer spending improved slightly in the third quarter of 2024, rising by 0.3% quarter-on-quarter after adjusting for prices, seasons and calendar events. This improvement follows a decline in the second quarter, reflecting an increase in household consumption activity. There was a notable increase in spending on non-durable consumer goods such as food and beverages, reflecting increased consumer demand for these essential goods. Government spending also increased by 0.4% quarter-on-quarter, supporting economic activity.
In contrast, fixed capital formation performed less positively, recording a slight decline. While spending on machinery and equipment fell by 0.2%, the construction sector saw a more significant decline of 0.3%. Although the decline was less severe than in the second quarter, with more pronounced declines in both sectors, the decline in fixed capital investment reflects a weakness in the economy in the short term.
Foreign trade, on the other hand, was a major challenge in the third quarter of the year. Exports of goods and services fell by 1.9%, with exports of goods falling sharply by 2.4%. This points to weaker global demand for German products, which is having a negative impact on economic growth. At the same time, imports increased slightly by 0.2%, as imports of goods rose by 1.3%.
These results are an indication of the challenges Germany faces in achieving sustainable economic growth. Despite a slight improvement in consumer spending, weak exports and falling investment suggest that economic pressures are likely to persist.
