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• According to the Federal Statistical Office, gross domestic product fell by 0.1 % in the fourth quarter, adjusted for price, seasonal and calendar effects . The preliminary annual GDP result for 2024 shows a price-adjusted decline of 0.2 percent. While the manufacturing sector continues to be characterized by a decline in production, the situation in consumer-related services is somewhat more favorable. A noticeable economic recovery in Germany is only likely to begin with clear prospects for the future economic, financial and geopolitical framework conditions.
• Production strengthened somewhat in November, but orders fell due to volatile large orders. Overall, there are no signs of a turnaround in the industrial economy. In the more meaningful three-month comparison, industry reduced its output by 1.3 % , although at the same time orders received in the manufacturing sector increased by 1.7 % . The sentiment indicators from ifo and S&P Global are still at a low level.
• The situation in the retail sector (excluding motor vehicles ) developed slightly weaker in November, with a price-adjusted decline in sales of 0.1 % . However, compared to the same month last year, retail sales rose by 3.0 % , and in the three-month comparison an increase of 2.3 % . New registrations of passenger cars overall fell significantly in December, both compared to the previous month (-6.2 % ) and the same month last year (-7.1 %) . In the three-month comparison, however, there was an increase of 10.1 % . In view of increasing concerns about job security and ongoing domestic and geopolitical uncertainties, a noticeable recovery in the consumer climate is still pending.
• The upturn in consumer prices observed in recent months continued at the end of the year. The inflation rate is expected to have risen significantly to +2.6 % in December , for a number of reasons: the year-on-year decline in energy prices was less pronounced, as expected, and the price increase in the services sector remains high. This is also reflected in the core rate (excluding energy and food), which also continued to rise.
• Despite ongoing economic stagnation, the labor market is developing relatively stably at the end of the year, but the outlook for the future remains cloudy. The number of employed people increased in November, but at the same time registered unemployment continued to rise moderately in December. The number of people on short-time work also increased again in December. The early indicators point to a further decline in demand for labor, so that a reversal of the weak development in the labor market is not expected at the beginning of the year either.
• According to final results in October, corporate insolvencies rose by 35.9 % compared to October 2023, with 2,012 cases. A total of 18,234 were registered from January to October, 23.6 % more than in the same period last year. The IWH insolvency trend in December was almost unchanged compared to November, but at the same time was 24.3 % higher than in the same month last year. The insolvency situation remains dynamic.
  
   

• According to the revised GDP figures from the Federal Statistical Office, the German economy almost stagnated in the third quarter. While losses were recorded in the manufacturing and construction sectors as well as in business-related service providers, there were increases in public service providers and in consumer-related service sectors (hotels and restaurants, retail). This suggests that private households are becoming less reluctant to buy, not least as a result of sharp increases in nominal and real wages. However, the renewed deterioration in recent sentiment indicators and the ongoing high level of geopolitical and domestic uncertainty do not yet indicate a sustainable economic recovery.
• Production and orders began the final quarter with declines. The industrial economy is still in a downturn. In the less volatile three-month comparison, however, the decline in production in the manufacturing sector was not as severe as before at -0.4 % , and incoming orders in the manufacturing sector even increased by 2.7 % . Nevertheless, the renewed deterioration in the sentiment indicators from ifo , S&P Global and ZEW suggests that a sustainable turnaround in the industry cannot be expected at present.
• The situation in retail (excluding motor vehicles ) has changed little recently. Price-adjusted sales in retail (excluding motor vehicles ) fell by 0.5 % in October compared to the previous month; compared to the same month last year, they were 2.2 % higher. Private new car registrations also barely changed in November after a strong increase in October (+0.3 % ). In view of increasing concerns about job security and ongoing geopolitical uncertainties, a sustainable recovery in the consumer climate is likely to be delayed for the time being.
• As expected, the inflation rate rose slightly to 2.2 % in November , but consumer prices fell by 0.2 % compared to the previous month . The fact that the annual rate increased in the last two months is mainly due to the elimination of the base effect for energy and package holidays. The inflation rate also averaged 2.2 % for the first eleven months of the year .
• Economic weakness continues to shape the development of the labor market. In October, the number of employed people fell again slightly after seasonal adjustment, and unemployment rose in November. At the same time, short-time work increased significantly in November. In view of the falling demand for labor and the announcements of job cuts in the manufacturing sector, the weak development of the labor market is expected to continue in the coming months.
• According to the IWH insolvency trend , the number of insolvencies fell slightly in November, but is still at a significantly higher level. In November, 1,345 insolvencies of partnerships and corporations were reported, a decrease of 12.1 % compared to the previous month , but still 37.7 % above the same month last year. The IWH also expects the number of insolvencies to remain high in the coming months , which are noticeably higher than the average values ​​for the pre-crisis years 2016 to 2019.
  
   

• In the third quarter, economic development in Germany picked up slightly, with real GDP growing by 0.2 % . This was driven by government and private consumption; on the production side, the service sectors may once again have driven growth. Current sentiment indicators from private households and companies, as well as a stabilization of the order situation in industry, suggest that economic development will bottom out at the turn of the year 2024/25. However, uncertainties regarding the economic consequences of the US presidential election have increased.
• Production ended the third quarter on a weak note, while incoming orders again increased noticeably at the end of the quarter. The recent positive development of incoming orders, particularly from abroad, as well as the recent improvement in the sentiment indicators from ifo and S&P Global suggest that the industrial economy will stabilize in the coming months.
• The situation in retail (excluding motor vehicles ) has recently improved somewhat. In September, price-adjusted sales were 1.2 % higher than the previous month. New car registrations rose significantly by 11.7 % in October . After the disappointing development in recent months, current leading indicators point to a stabilization in consumer sentiment in Germany. However, concerns about job security and geopolitical developments remain risk factors for a sustainable recovery in the consumer climate.
• The inflation rate rose to +2.0 % in October . One of the main reasons for the increase was that food prices continued to rise to +2.3 % . At the same time, the price-dampening effect of cheaper energy has weakened. However, energy prices continued to fall significantly in October at -5.5 % . However, given the sharp decline in energy prices in the fourth quarter of 2023, the negative year-on-year rates are likely to end soon. However, inflation should remain moderate over the rest of the year.
• The usual autumn revival in the labor market is still not happening due to the economic weakness. According to a revision of the official data, employment fell in September for the fourth time in a row after seasonal adjustment. At the same time, both registered unemployment and underemployment rose again noticeably in October. Given that demand for labor remains subdued according to leading indicators, a noticeable revival in the labor market is not foreseeable over the rest of the year.
• The IWH insolvency trend shows 1,530 insolvencies of partnerships and corporations in October, an increase of 17.4 % compared to the previous month.
  
   

• According to available indicators, the German economy is unlikely to have emerged from its weak phase in the third quarter. Rather, a further, slight decline in overall economic value added does not seem to be ruled out. In addition to the continued weak industrial production, the mood in the service sectors, which previously supported growth, has also recently deteriorated noticeably. The economic weak phase is therefore likely to continue in the second half of 2024.
• Production in the manufacturing sector was able to partially compensate for the loss from the previous month, while orders received in the manufacturing sector fell again after two positive months. In the manufacturing sector, output rose by 2.9 % in August compared to the previous month, adjusted for price, calendar and seasonal factors. Despite the recent positive development, production continued to decline at -1.3 % in the more meaningful three-month comparison . Orders received, on the other hand, increased noticeably at +3.9 % in the three-month comparison. However, with the 5.8 % decline in August , hopes that orders may have bottomed out have fallen again.
• Price-adjusted retail sales (excluding motor vehicles ) rose by 1.5 % in July and by 1.6 % in August compared to the previous month. Internet and mail order sales recorded high growth (+10.6 % compared to the previous year). New car registrations by private individuals rose by 4.5 % in August compared to the previous month . However, a three-month comparison showed a decline of 2.3 % . Early indicators for the development of private consumption are currently sending mixed signals, but generally point to a stabilization. Concerns about job security and geopolitical crises, however, continue to represent risk factors for a sustainable recovery in the consumer climate.
• The inflation rate fell to +1.6 % in September , the lowest level since spring 2021. This was mainly due to a temporary price-dampening effect from significantly lower energy prices, which fell by 7.6 % year-on-year . However, given the sharp decline in energy prices in the fourth quarter of 2023, the negative year-on-year rates are likely to end soon. Overall, however, inflation is likely to remain moderate over the rest of the year.
• The autumn recovery in the labor market has so far fallen short of expectations. Seasonally adjusted unemployment rose by 17,000 people in September compared to the previous month . Taking seasonal effects into account, employment also fell for the first time this year, at -21,000 people in August. Based on the leading indicators, the prospects for a recovery in the labor market in the second half of the year have continued to dim.
• According to final results, the number of corporate insolvencies rose by 17.2 % month-on-month to 1,937 cases in July, after a sharper decline of 14.5 % was recorded in June. Compared to the same month last year, the increase was 22.1 % . The IWH insolvency trend shows a slight increase of 1.6 % compared to the previous month in September 2024, with 1,303 insolvencies of partnerships and corporations.
  
   

• The German economy is still stagnating at the start of the third quarter. Declining order backlogs and a generally weak order situation are dampening the export-oriented industry. The situation in the consumer-related service sectors of trade, transport and hospitality is also still assessed as unfavourable. Despite falling inflation and the significant increase in purchasing power as a result of higher real wages, consumer sentiment has deteriorated. An economic recovery is not likely to occur until the end of the year.
• At the beginning of the third quarter, production fell again, while new orders expanded for the second time in a row. Production in the manufacturing sector was reduced by 2.4 % in July compared to the previous month, adjusted for price, calendar and seasonal effects. In the more meaningful three-month comparison, it was therefore down by 2.7 % . Even though new orders were up at the beginning of the third quarter, ordering activity, excluding the highly fluctuating large orders, fell by 0.4 % compared to the previous month.
• Despite falling inflation and a significant increase in purchasing power due to higher real wages, the mood among private households in Germany has recently deteriorated again, according to the HDE consumer barometer and the GfK consumer climate. The ifo business climate in retail, including motor vehicles, rose by 2.3 points in August, but was still noticeably negative at -23.1 points. Overall, the leading indicators currently offer little hope of a noticeable recovery in consumption.
• At +1.9 %, the inflation rate in August was below the target of 2 % for the first time since March 2021. Although price pressure on food increased slightly by 1.5 % , it was still below average. At the same time, the price-dampening effects of cheaper energy have noticeably increased. Energy prices fell by 5.1 % year-on-year . However, price increases for services continued to be above average at +3.9 % . Overall, the inflation-dampening factors are likely to persist for the rest of the year.
•  The weak economy is increasingly reflected in the labor market. Registered unemployment rose by 2,000 people in August, seasonally adjusted, while employment increased by 4,000 people in July, significantly less than in the previous months. The leading indicators do not point to an imminent turnaround, so that no recovery in the labor market is currently expected in the second half of the year.
• According to final results, the number of corporate insolvencies in June was 14.5 % lower than in May, with 1,653 cases. Compared to the same month last year, the increase was 6.8 % . The IWH insolvency trend shows 1,282 insolvencies of partnerships and corporations in August 2024, an increase of 27.3 % compared to the previous month.
  
   

• According to initial, preliminary results (“flash report”), gross domestic product fell slightly by 0.1 % in the period from April to June compared to the previous quarter, adjusted for price, calendar and seasonal effects. With the renewed deterioration of sentiment indicators such as the ifo business climate index, the ZEW economic indicator and the S&P Global purchasing managers index at the beginning of the third quarter, the risks to the generally expected economic recovery have increased. A broader economic recovery does not appear to be in sight for the time being.
• At the end of the second quarter, production increased and orders received also increased for the first time since the beginning of the year. Production in the manufacturing sector increased in June by 1.4 % compared to the previous month, adjusted for price, calendar and seasonal factors. However, in the more meaningful three-month comparison, it still fell by 1.3 % . The development of orders received in the manufacturing sector continued to be characterized by strong fluctuations in large orders.
• The improvement in consumer sentiment is likely to continue, as measured by the GfK consumer climate. Given the positive trend observed since the beginning of the year and lower inflation rates and wage increases, private consumption could pick up in the second half of the year.
• The inflation rate rose again slightly to +2.3 % in July . Price pressure from food has recently increased again somewhat; compared to the previous year, prices rose by 1.3 % . At the same time, the price-dampening effect of cheaper energy has decreased; here the annual rate was -1.7 % . The core rate (excluding energy and food) remained unchanged at +2.9 % . However, the inflation-dampening factors are likely to predominate over the rest of the year.
• The stagnating economy is leaving ever clearer marks on the labor market. Registered unemployment rose by 18,000 people in July, seasonally adjusted, which is significantly more than usual. However, the increase in the number of employed people in June, at +7,000 people, is significantly lower than previously. Employment subject to social security contributions also rose only slightly compared to previous months, at +5,000 people in May, seasonally adjusted. Current leading indicators also point to a subdued development.
• According to final results, the number of corporate insolvencies in May was 1,934 cases, 1.5 % higher than in April. Compared to the same month last year, the increase was 30.9 % . The IWH insolvency trend shows 1,406 insolvencies of partnerships and corporations in July 2024, an increase of 20.3 % compared to the previous month.
  
   

• The latest sentiment and economic indicators have weakened. The still weak foreign demand in industry can only be partially compensated by the still muted domestic economic recovery. Temporary positive effects in the consumer-related economic sectors are likely to come from the European Football Championship in the short term, before rising real incomes, robust employment growth and increasing impulses from foreign trade lead to a broader economic recovery over the course of the year.
• In May, production in the manufacturing sector fell by 2.5 % compared to the previous month, adjusted for price, calendar and seasonal effects. Both construction production and industrial production were reduced by 3.3 % and 2.9 % respectively. In the particularly energy-intensive industries, production increased slightly by +0.2 % . In the less volatile three-month comparison, industry recorded a slight increase of +0.4 % , driven by the consumer goods (+1.3 % ) and intermediate goods (+0.9 % ) sectors. Weak demand for capital goods led to a decline of 0.3 % there .
• Retail trade was somewhat weaker in April (May figures are not yet available). Price-adjusted retail sales (excluding motor vehicles ) fell slightly by 0.2 % compared to the previous month . Compared to April 2023, retail trade reported a slight increase in real sales of 0.3 % . The improvement in leading indicators has recently been slightly dampened, but the positive trend of recent months points to an economic recovery in the second half of the year.
• The inflation rate fell slightly to +2.2 % in June. In May it rose slightly to +2.4 % , mainly due to a base effect from the introduction of the 49-euro ticket in May 2023. The core rate (excluding energy and food) fell slightly to +2.9 % in June. Food prices rose by 1.1 % compared to the same month last year . Energy prices fell by 2.1 % in June compared to the same month last year, a sharper decline than in May. Inflation-dampening factors are likely to prevail over the remainder of the year.
• Given the weak economic momentum, the labor market figures in June are also sending out mixed signals: registered unemployment rose by 19,000 people after seasonal adjustment, and underemployment rose by 16,000 people. At the same time, employment in May increased by 20,000 people and employment subject to social insurance contributions increased by 44,000 in April compared to the previous months, most recently after seasonal adjustment. Early indicators suggest that the labor market is likely to continue to develop at a subdued pace.
• According to final results, the number of corporate insolvencies in April was 5.8 % higher than in March. Compared to the same month last year, the increase was 33.5 % . The IWH insolvency trend shows the previously forecast second decline in a row in June 2024, with 1,169 insolvencies of partnerships and corporations. For the entire first half of 2024, the increase compared to the same period last year is 35.1 % , according to IWH figures.
  
   

• The latest indicators still paint a subdued picture of the German economy at the start of summer: the palpable brightening of the sentiment indicators for the industrial sector, construction and services and the improvements in the overall framework are only beginning to become apparent in the real data. Short-term dampening factors in the industrial sector due to weak foreign demand and disruptions of production resulting from the floods in Bavaria and Baden-Württemberg are countered by factors stimulating demand for consumer-related services in connection with the European Football Championship.
• Output in the goods-producing sector is not yet reflective of a sustained recovery. In April, it fell by 0.1% compared to the preceding month, resulting in near stagnation. While construction output fell by a significant -2.1% again in April, industrial output expanded slightly by +0.2%. Following the previous declines, energy generation increased noticeably by 1.6%. Production in the particularly energy-intensive industries was down 0.9% in April. However, the two-month comparison shows an expansion of output from the industrial sector (+0.6 %), capital goods (+1.2 %) and particularly the energy-intensive industries (+1.5 %).
• Retail trade slowed down slightly in April. Real retail turnover (excluding motor vehicles) fell slightly by 0.2% month-on-month. Compared with April 2023, the retail sector experienced a small increase in turnover of +0.3% (March: +1.1%). Overall, the leading indicators are increasingly suggesting the arrival of a recovery, albeit from a low level.
• The inflation rate rose slightly to 2.4% in May. Much of this increase is attributable to a base effect resulting from last May’s introduction of a flat-rate public transport ticket that is valid across Germany at a cost of €49 per month. The core rate (excluding energy and food) remained unchanged at 3.0%. Food prices were up 0.6% in April compared to a year ago. Energy prices continued to fall compared to a year ago, but at a slower rate (- 1.1%). Overall, the fundamentals suggest that price development will be moderate in the course of the year.
• The labour market continued to be shaped by weak short-term cyclical dynamism in May: unemployment, in seasonally adjusted terms, rose by 25,000 persons, whereas the number of gainfully employed persons rose by 25,000 in April. Once again, this job growth was largely attributable to the services sector, which more than compensates for the job losses seen in industrial branches that are particularly sensitive to short-term economic developments. The latest leading indicators send mixed signals, which, taken together, suggest that the current trend is likely to continue.
• According to the insolvency indicator of the German Economic Institute (IW) in Halle, insolvencies of partnerships and corporations fell by 7% in May compared to the preceding month.
  
   

• Economic development in Germany picked up slightly at the beginning of the year with real GDP growth of 0.2% in the first quarter. Growth was primarily fuelled by construction investment (weather-related) and net foreign demand (exports minus imports). In contrast, investment in equipment and consumer spending are likely to have remained weak. Given lower inflation rates, expected monetary policy easing, rising wages and incomes, a stable labour market and increasing impetus from foreign trade, the economic recovery will gradually consolidate and broaden out and it will pick up momentum.
• According to the Federal Statistical Office, output in the manufacturing sector fell slightly by 0.4% in March compared to the previous month in price-, calendar- and seasonally adjusted terms. Industrial output also dropped recently, falling by 0.4%. However, output in the construction industry increased by 1.0%. Output in energy generation fell again by 4.2 %. In a quarter-on-quarter comparison, there was noticeable growth of 0.7 % and 1.0 % in industry and the manufacturing sector as a whole, despite the recent setbacks. In the construction industry, there was a significant increase of 3.9 % in the first quarter compared to the previous quarter, which was probably partly due to the mild weather.
• Price-adjusted retail turnover (excluding motor vehicles) rose noticeably by 1.8% in March compared to the previous month, after falling in the previous four months. Compared to the previous year, the retail sector reported a real sales increase of 0.3%. Overall, the leading indicators for consumer spending are trending increasingly upwards, albeit from a low level.
• The inflation rate remained unchanged at 2.2% in April. Inflation has been on a downward trend since March 2023. Food prices rose by 0.5% in April compared to the same month last year, after falling in March for the first time since February 2015. Energy prices, however, fell further compared to the same month last year, most recently by 1.2%. In the services sector, prices continued to rise at an above-average rate of +3.4 %.
• On the labour market, the usual spring upturn is lacking momentum due to weak economic activity. The upward trend in unemployment continued with an increase of 10,000 persons (seasonally adjusted). At the same time, employment continued to rise in March (+8,000 seasonally adj.), but at a slower pace. Some leading indicators have recently deteriorated somewhat. As a result of the expected economic recovery and the increasing employment of refugees from Ukraine, the situation on the labour market is likely to improve later in the year.
• According to final figures, the number of corporate insolvencies rose by 10.0 % in February compared to the previous month (+31.1 % year-on-year) to 1,785. This is the highest monthly growth rate since March 2022. The insolvency trend of the Leibniz Institute for Economic Research Halle (IWH) for April 2024 shows 1,367 insolvencies of partnerships and corporations, the highest figure since recording began in January 2016. At the same time, the IWH expects insolvency figures to ease from May or June at the latest.
  
   

• The latest short-term economic indicators are suggesting a turnaround is happening, even though the overall picture is mixed: favourable weather conditions and pent-up activity after high sickness rates at the end of last year are boosting output in industry and construction. Sentiment in the industrial sector and among private consumers has brightened significantly since the start of the year. Foreign trade is also seeing a slight revitalisation. Nevertheless, risk levels remain high due to weak ordering activity and ongoing geopolitical insecurity, especially in the Middle East.
• The goods-producing sector was able to expand its output by 2.1% (adjusted for price, seasonal and calendar variations) between January and February. This is the second successive substantial rise. Industrial output also continued to rise (+1.9%) in that period. Prior to this, it had been falling since May 2023. The construction industry saw strong growth of +7.9%, following on from an expansion of 2.9% in January. Much of the positive development seen in the construction industry in February is likely to be attributable to the mild weather, whilst the considerable expansion of output from the goods-producing sector is certainly owed in part to pent-up activity after a time of high sickness rates.
• Real retail turnover excluding motor vehicles fell considerably by 1.7% in February compared to the preceding month, resulting in the fourth successive downward development month-on-month. Compared with the same month a year ago, the retail sector experienced a real decline in turnover of 2.6%. Overall, the leading indicators for private consumption increased by a slight margin, albeit at a low level.
• The inflation rate fell to 2.2% in March – its lowest level since April 2021. This means that inflation has been trending downwards since March 2023. Prices for food fell for the first time since February 2015 (-0.7% year-on-year). Energy prices also fell again compared to the same month of the preceding year, this time by 2.7%. By contrast, inflation in the services sector saw a slight increase again (+3.7%).
• The labour market continued to add new jobs in February, albeit at a slower pace, with unemployment also rising. While the goods-producing sector and other industries whose performance is highly correlated with short-term economic development saw a decline in the number of jobs, the services sector created new ones. The leading indicators suggest that this trend is likely to continue: according to the IAB labour market barometer, unemployment is set to rise again over the next few months, along with employment. The ifo employment barometer has continued to brighten a little, but service providers remain the only sector to expect to add new jobs.
• The Halle Institute for Economic Research’s Bankruptcy Update puts the number of insolvencies at 1,297 in March, which is up 9% from the preceding month (+35% compared to March 2023). According to the Institute, this is the highest figure since it began collecting data in 2016. However, the leading indicators suggest that the number of insolvencies might recede a little as of May.
  
   

• Despite positive trends in industrial output, construction and foreign trade at the start of 2024, a noticeable economic recovery is not yet in sight. This is due to continuing weak domestic demand, high financing costs and the subdued sentiment still present among private households and companies. In their latest forecasts, most economic research institutes expect GDP to fall again in the first quarter of 2024.
• According to the Federal Statistical Office, production in the manufacturing sector rose by +1.0% in January compared to the previous month. This marks the first noticeable increase in 11 months. Industry and construction both increased their output (+1.1% and +2.7% respectively). By contrast, the energy sector reported a significant decline (-3.7%). As expected, there was a drop in new manufacturing orders in January compared to the previous month (-11.3%). Thanks to large orders, there had been an increase of 12% in December. In a two-month comparison, which is less susceptible to fluctuation, orders were up 5.9%. Excluding large orders, the order volume fell by 2.1%.
• Real retail turnover excluding motor vehicles fell by 0.4% in January compared to the preceding month, resulting in the third consecutive downward development. Year-on-year, the retail sector experienced a real sales decline of 1.5% in January. Overall, the leading indicators are largely moving sideways and only at a very low level.
• Inflation stood at 2.5% in February, its lowest rate since June 2021. This was down from 2.9% in January. This means that inflation has been trending downwards since March 2023. At 0.9%, year-on-year inflation on food was at its lowest since December 2020. Since the outbreak of the war, the price increase had remained disproportionately high. Consumer prices for energy were 2.4% lower in February than in the same month of the previous year despite the fact that the energy price brakes had been lifted and the price of carbon raised in January 2024.
• The labour market continues to prove robust overall considering the period of economic weakness, but remains ambivalent: although unemployment rose slightly, up by 11,000 people in February, employment and employment subject to social insurance contributions also increased significantly in January and December. The leading indicators deteriorated somewhat, but demand for labour remains high.
• The Halle Institute for Economic Research’s Bankruptcy Update shows an increase in corporate insolvencies of 10.8% (+1,193) for February 2024 over the previous month (same month of the previous year: +43.2%). According to the Institute, this is the highest figure since it began collecting data in 2016. It expects insolvency figures to continue to rise in the coming months.
  
   

• After weak economic growth at the end of 2023 with a decline in real GDP of 0.3 per cent, current leading indicators do not yet point to a recovery at the beginning of the year. The mood among consumers has recently deteriorated again. Negative factors such as weak foreign demand, strikes in public transport, high levels of sick leave among employees and geopolitical tensions resulting in supply chain delays could lead to a further delay in the expected economic recovery.
• Output in the goods-producing sector fell by 1.6% in December as compared to the previous month, resulting in another noticeable dip at the end of the year. Output declined in both industry and the construction sector (-1.5% and -3.4% respectively). In contrast, the energy sector again registered a strong increase (+4.1%). New manufacturing orders increased markedly in December compared to the preceding month (+8.9%), following stagnation in November (0.0%) and a noticeable decrease in October (-3.8%). However, the two-month comparison shows that new orders in December were once again characterised by fluctuations in the number of large orders; excluding these, industrial orders fell by 2.2%.
• After falling by 0.8% in November, real retail sales excluding motor vehicles declined further by -1.6% in December. Year-on-year, the retail sector experienced a real sales decline of 1.8% in December. The leading indicators for the future development of consumer spending currently present a mixed picture:
• The inflation rate stood at 2.9% in January: that is the lowest level since June 2021. In December, the rate was noticeably higher (3.7%), which was largely due to a base effect caused by the immediate assistancein December 2022. This base effect no longer had an impact in January 2024, meaning that the previous year’s rate fell noticeably – even though the cap on energy prices expired and the carbon price increased.
• The labour market developed a bit more favourably at the beginning of the year owing to mild weather. Seasonally adjusted unemployment fell by 2,000 people in January. The labour market saw an increase in employment in December and jobs subject to social insurance contributions also rose slightly in November. The leading indicators provided a mixed picture in January: while the number of reported jobs stagnated, the IAB labour market barometer improved and pointed to more favourable employment prospects.
• The Halle Institute for Economic Research’s Bankruptcy Update for January 2024 showed an almost unchanged figure compared to the previous month. The institute assumes that the number of corporate insolvencies will continue to rise in the coming months.

The German economy is not only struggling with persistent economic headwinds, but is also having to adapt to changing structural conditions. This is affecting the industrial sector in particular, putting a strain on its export business and investments. The labour market, too, is now responding noticeably to the protracted weakness of economic activity. This is dampening private consumption. Against this backdrop, the German economy is set to stagnate in the winter half-year 2024‑25 and only begins to make a slow recovery over the course of 2025. Exports then gradually benefit from the growing sales markets, albeit to a lesser extent than used to be the case. After some delay, business investment also goes back up on the back of rising capacity utilisation and lower financing costs. Private consumption rises consistently, but is initially noticeably slowed by a temporary weakening of the labour market and a significant decline in wage growth. 

Calendar-adjusted real GDP falls again slightly in 2024, by 0.2 %, then grows by 0.2 % in 2025, 0.8 % in 2026 and 0.9 % in 2027. The growth outlook is thus revised sharply downwards relative to the June 2024 Forecast for Germany over the entire forecast horizon. This is primarily due to the more persistent weakness in the industrial sector, which is, in addition, largely considered to be structural now, and the consequently significantly gloomier outlook for exports and business investment. Private consumption is also less dynamic, no longer acting as an independent driver of the expected recovery. 

 

Hopes back in the spring of a slowly strengthening recovery of the German economy were not realised. Instead of expanding markedly, real GDP declined somewhat in the summer half-year in seasonally adjusted terms. Despite growing sales markets, exports contracted sharply. The impact of the German economy’s reduced competitiveness was thus more strongly felt than expected. Against this backdrop, compounded by declining output and a very low level of capacity utilisation in the industrial sector, firms dialled back their investment more substantially than anticipated. Housing investment also fell more sharply than predicted. Private consumption growth ultimately fell significantly short of expectations as well. Persistently weak economic activity, coupled with a more unfavourable development of the labour market, likely contributed to this. 

It is becoming increasingly apparent that the German economy is struggling not only with persistent economic headwinds, but also with considerable structural problems. It is under great pressure to adapt due to changing structural conditions both at home and abroad. This is mainly a problem for the export-oriented industrial sector. Domestically producing industrial firms must adjust, in particular, to the longer-term effects of the energy price shock triggered by Russia’s war of aggression against Ukraine, the requirements of the green transition to a carbon-neutral economy and the consequences of demographic change. Demanding regulatory requirements for enterprises and uncertainty surrounding the economic policy conditions are also burdens here. In addition, German firms are being confronted with increasing protectionist tendencies and growing competition from emerging markets. China, in particular, has gained considerable ground in the automotive and chemical industries and mechanical engineering – sectors which are particularly integral to German industry – as well as distinct market shares.

 

The global economy remained on a moderate growth path in the third quarter of 2024. The United States was yet again its main pillar. Its gross domestic product (GDP) rose significantly in the third quarter, too, after price and seasonal adjustment. On the other hand, Chinese economic activity was once again anaemic, not least because of the ongoing real estate market crisis. Economic output in the euro area increased markedly, mainly due to one-off effects.

The recent improvement in industry is unlikely to last. As in the second quarter, global industrial output rose perceptibly in the summer months, too. The economies of Asia, which are highly integrated into international value chains, were a significant factor in this. Global trade in goods expanded even more buoyantly. However, frontloading effects appear to have been playing a role in this. In the previous quarter, companies had already restocked their inventories in anticipation of possible trade policy frictions and the threat of disruptions to shipping. It thus remains to be seen whether the recent upswing will prove sustainable. This is also shown by recent purchasing managers’ surveys, according to which output growth in the manufacturing sector globally came to a standstill as of late and order books have continued to shrink. Political demands for new tariff barriers pose considerable additional risks to international trade.

 

German economy still stuck in period of weakness

Real gross domestic product (GDP) is likely to have contracted again somewhat in the third quarter of 2024. Output in the industrial sector and in construction probably declined markedly, with demand in both sectors remaining weak. This is likely to be due in part to the still comparatively high financing costs, which are dampening investment activity and thus demand for capital goods. Continuing uncertainty with regard to future economic and political conditions is also likely to be weighing on investment, as it impairs planning security for enterprises. Foreign demand for German industrial products is currently recovering only slightly, despite moderate growth in German sales markets. This indicates ongoing competitiveness issues. As a result, both domestic and foreign demand for German industrial products remains weak. The consequently now low level of capacity utilisation in the manufacturing sector is, in turn, taking its toll on the respective investment. At the same time, service providers are likely to have provided support to the economy in the third quarter, albeit to a limited extent, because private consumption probably provided only little impetus as consumers remained unsettled. The increase in their real incomes is intact as wages are rising significantly more strongly than prices. However, they were still hesitant to make use of this additional scope for expenditure. In the fourth quarter, economic activity could – from today’s perspective – more or less stagnate. Although the German economy is currently still not expected to see a recession in the sense of a significant, broad-based and prolonged decline in economic output, it remains stuck in the period of weakness that has persisted since mid-2022.

 

The German economy is still navigating choppy waters. Output in the industrial sector and in construction got off to a sluggish start in the third quarter of 2024, with heightened economic policy uncertainty weighing on business. Furthermore, higher financing costs are still making themselves felt; this is dampening demand for industrial goods and construction work, in particular. Although new orders from abroad appear to be beginning to recover slightly, this did not so far suffice to mitigate the lack of orders in industry overall. In spite of favourable conditions – negotiated wages are growing strongly and the labour market outlook remains relatively stable – private consumption is still struggling to get off the ground. Sentiment indicators and data on new passenger car registrations, for example, suggest that consumers remain cautious about spending. Uncertainty about the future outlook for private consumption and services is currently elevated, however. Seasonally adjusted sales in the trade and services sectors are not yet available for the whole of the second quarter. Overall, from today's perspective, real gross domestic product (GDP) could stagnate or decline again somewhat in the third quarter. The prospect of a recession , in the sense of a sharp, broad-based and persistent decline in economic output, looks unlikely at the current time, however.

 

The global economy continued to expand moderately in the spring, albeit with regional differences. In China, flagging domestic demand depressed economic growth. In the euro area, the growth seen at the beginning of the year continued. However, there is no sign of a strong, broad-based upswing. In the United States, by contrast, economic activity remained fairly buoyant. Economic growth there was even somewhat stronger than at the beginning of the year.

Global industrial activity continued to pick up in the second quarter, but the short-term outlook has recently deteriorated again somewhat. Industrial output rose significantly, particularly in the United States and Japan. The global industrial recovery thus broadened. The euro area remained a key exception. There, output continued to decline in the second quarter. Global trade increased in line with global industrial output. According to the results of recent surveys of purchasing managers, however, the global industrial recovery may have recently stalled. Industrial output probably barely inched upwards in July, and new orders fell.

 

German economic output probably grew somewhat more slowly in the second quarter than expected. Real gross domestic product (GDP) is likely to have increased only slightly in the second quarter of 2024. Temporary hopes that industrial activity would soon pick up were distinctly dampened when data for May was published. There was a significant fall in industrial production and the signs of stabilisation in new orders sparked by April's strong order growth tailed off markedly. The industrial sector is therefore likely to have slowed economic activity in the second quarter. Higher financing costs continued to weigh on investment and thus on domestic demand for industrial goods and construction work. For this reason – as well as due to a counter-effect following the mild weather in the first quarter – construction output, too, is likely to have fallen in the second quarter. By contrast, the recovery in the services sector probably continued, as indicated, for example, by survey results from the ifo Institute and S&P Global. Private consumption is likely to have buoyed demand for services. Overall, available indicators suggest that private consumption increased slightly in the second quarter. 

Economic activity is likely to strengthen somewhat in the third quarter. Private consumption will probably pick up a little more momentum. This is likely to be supported, in particular, by the favourable framework conditions of strongly rising wages, subsiding inflation and a robust labour market. Furthermore, in spite of the disappointing June results, pessimism among retailers and service providers declined markedly overall in the second quarter according to the ifo Institute's Business Climate Index. This is also true for the manufacturing sector. However, the recent dip in industrial new orders suggests that the spell of weak demand has not yet been fully overcome and that industrial activity is likely to improve only slowly. As things currently stand, GDP growth in the third quarter, too, could therefore fall short of the expectations expressed in the Bundesbank’s June forecast for Germany.

 

The German economy is slowly regaining its footing after a roughly two-year period of weakness. The services sector has already seen the beginning of an upturn, which will probably intensify sooner rather than later as private consumption gradually picks up again. Starting from the second half of the year, industry is also likely to expand once export business improves again. The economic recovery will be driven by consumption and exports as of 2025 as well. Households are benefiting from strong wage growth, a gradual decline in inflation and the stable labour market. Rising foreign demand is bolstering the export industry. Private investment continues to decline initially, providing perceptible growth stimulus only as of 2026. The German economy therefore grows again somewhat in the current year before expanding more strongly in the years after that. Calendar-adjusted real GDP increases by 0.3% in 2024, 1.1% in 2025 and 1.4% in 2026. This is broadly in line with the last Forecast for Germany, published in December 2023.

Although the inflation rate in Germany continues to recede, it remains persistently high. As measured by the Harmonised Index of Consumer Prices (HICP), it looks set to fall from last year's 6.0% to 2.8% this year. Energy and food price inflation in particular is easing considerably. Core inflation (the rate excluding energy and food) is likewise declining markedly, but the disinflation process is much slower here. The core rate is likely to reach 3.1% in 2024 before decreasing only relatively hesitantly to 2.5% in 2025 and 2.3% in 2026. This is mainly due to the strongly rising labour costs. These will also spark another fairly robust surge in food prices, especially next year. Energy price inflation will then also pick up again. The headline HICP rate will drop to 2.7% in 2025 and 2.2% in 2026. The inflation outlook for 2024 and 2025 has been revised upwards slightly compared to the December 2023 Forecast for Germany. It remains unchanged for 2026. The revisions are mainly due to stronger services inflation, higher oil prices and somewhat sharper rises in food prices. 

 

Economic output in Germany up again recently

German economic output rose somewhat in the first quarter of 2024. According to the Federal Statistical Office‘s flash estimate, seasonally adjusted real GDP rose by 0.2% on the previous quarter. It had fallen sharply in the final quarter of 2023, by 0.5% according to revised data.1 Growth was recorded in the construction sector, in particular, but also in industry and probably in services as well in the first quarter of 2024. This was partly due to favourable weather conditions for construction activity. The previous quarter had seen weather detrimental to construction, by contrast, producing the major swing now seen in construction. In energy-intensive industry, the negative trend did not persist and production picked up substantially. Moreover, the sickness rate was not quite as high as in the previous quarter, which is also likely to have bolstered economic output. In addition, the remaining backlog of orders enabled production to increase in construction but above all in industry, as demand remains weak in both sectors. There was a sharp contraction in new orders for industry from both Germany and abroad in the first quarter of 2024. This is a reflection of the fact that global trade remained subdued and increased financing costs off the back of the interest rate reversal as well as greater economic policy uncertainty dampened domestic investment. Higher financing costs also weighed on new orders in the main construction sector. Private consumers remained unsettled, meaning that their consumption was still sluggish even though their income situation is likely to have improved significantly thanks to a stable labour market and a renewed rise in real wages. The fact that the services sector expanded in spite of this is probably due to growth in sectors more related to industry and business.

 

The German economy has brightened somewhat, but a widespread upturn is still far from certain.

 Real gross domestic product (GDP) is likely to have increased slightly in the first quarter. This expectation is supported by a somewhat higher level of industrial output recently, which was also driven by a rise in goods exports. In addition, unusually mild weather in February led to exceptionally strong growth in construction output. However, industrial output remains weak in many economic sectors, and construction output is likely to fall again significantly without the supportive weather effects. Overall, there is still no sign of a sustained improvement for the German economy, as negative factors persist. Higher financing costs and heightened economic policy uncertainty are dampening business investment. Demand for German industrial products is still weak domestically and abroad and is continuing to trend downwards. Likewise, the negative trend in demand for housing construction continued unabated. Households are still reluctant to increase their consumption expenditure despite a fairly stable labour market, substantially higher wages, falling inflation rates and thus a recovery in real incomes. Averaged across January and February, for example, retail sales were markedly down on the previous quarter. It is therefore not yet clear whether the increase in economic output will continue in the second quarter. However, the sentiment among firms, especially business expectations as surveyed by the ifo Institute, has recently shown a marked and broad-based improvement. If business sentiment continues to brighten, the underlying cyclical trend could pick up more clearly than was expected one month previously.

 

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. 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.

 

Moderate growth in global economy given pronounced regional and sectoral differences

The global economy saw moderate growth in the final quarter of 2023, with regional differences in global activity persisting. In the euro area, economic output stagnated. In China, too, growth remained subdued in view of the ongoing downturn in the real estate market. By contrast, the US economy continued to expand at a brisk pace. Overall, the global economy remained solid in spite of strains such as the still relatively high energy and food prices, the tightening of monetary policy in many regions, heightened geopolitical risks and a variety of structural challenges.

Global industrial output increased moderately in the fourth quarter of 2023, again driven by the emerging market economies. In the advanced economies, by contrast, output has been falling on a trend basis for more than a year, with weak industrial activity in the euro area being a key factor. Imports of goods by advanced economies declined even more sharply. According to business surveys, 2024, too, got off to a subdued start in the industrial sector and global trade. The services sector, on the other hand, appears to be gaining momentum.

 

Germany’s real gross domestic product (GDP) probably declined somewhat in the fourth quarter of 2023.1 Foreign orders for the German industrial sector receded further. Higher financing costs continued to dampen investment, particularly in housing construction. Uncertainty about the future direction of fiscal and climate policy is also likely to have weighed on economic activity. Consumers remained cautious. Their consumption expenditure is unlikely to have increased by much, even though their scope for spending probably expanded seeing as the labour market remained robust, inflation came down and wages grew strongly. In addition, economic activity was dampened by unfavourable weather conditions for construction activity and a relatively high sickness rate according to data from company health insurance funds. While the remaining backlog of orders in industry and construction is likely to have had a bolstering effect, output in both sectors dropped substantially. Overall, the economy is currently in slightly weaker shape than expected in the December projection. Signs that foreign demand for industrial goods had already bottomed out were not borne out by the data. In addition, the business climate deteriorated further in January 2024 according to the ifo Institute. However, households’ income situation is improving as expected. All in all, German economic output could be stagnant at best in the first quarter of 2024.2 This would mean a delay in the recovery expected in the December projection.

At its meeting on 12 December 2024, the Governing Council decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – was based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

The disinflation process is well on track. According to the December 2024 Eurosystem staff macroeconomic projections for the euro area, headline inflation is expected to average 2.4% in 2024, 2.1% in 2025, 1.9% in 2026 and 2.1% in 2027 when the expanded EU Emissions Trading System becomes operational. For inflation excluding energy and food, staff project an average of 2.9% in 2024, 2.3% in 2025 and 1.9% in both 2026 and 2027.

Most measures of underlying inflation suggest that inflation will settle at around the Governing Council’s 2% medium-term target on a sustained basis. Domestic inflation has edged down but remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay.

 

At its meeting on 17 October 2024, the Governing Council decided to lower the three key ECB interest rates by 25 basis points. In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – was based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. The incoming information on inflation showed that the disinflationary process is well on track. The inflation outlook was also affected by recent downside surprises in indicators of economic activity. Meanwhile, financing conditions remained restrictive.

Inflation is expected to rise in the coming months, before declining to target in the course of next year. Domestic inflation remains high, as wages are still rising at an elevated pace. At the same time, labour cost pressures are set to continue easing gradually, with profits partially buffering their impact on inflation.

 

At its meeting on 12 September 2024, the Governing Council decided to lower the deposit facility rate – the rate through which it steers the monetary policy stance – by 25 basis points. Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it was appropriate to take another step in moderating the degree of monetary policy restriction.

Recent inflation data have come in broadly as expected, and the September 2024 ECB staff macroeconomic projections confirm the previous inflation outlook. ECB staff see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June 2024 Eurosystem staff macroeconomic projections. Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline towards the Governing Council’s target over the second half of next year. For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, ECB staff continue to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.

 

At its meeting on 18 July 2024, the Governing Council decided to keep the three key ECB interest rates unchanged. The incoming information broadly supports the Governing Council’s previous assessment of the medium-term inflation outlook. While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June. In line with expectations, the inflationary impact of high wage growth has been buffered by profits. Monetary policy is keeping financing conditions restrictive. At the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

 

At its meeting on 6 June 2024, the Governing Council decided to lower the three key ECB interest rates by 25 basis points. Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it was appropriate to moderate the degree of monetary policy restriction after nine months of holding rates steady. Since the Governing Council meeting in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly. Underlying inflation has also eased, reinforcing the signs that price pressures have weakened, and inflation expectations have declined at all horizons. Monetary policy has kept financing conditions restrictive. By dampening demand and keeping inflation expectations well anchored, this has made a major contribution to bringing inflation back down.

At the same time, despite the progress over recent quarters, domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year. The latest Eurosystem staff projections for both headline and core inflation have been revised up for 2024 and 2025 compared with the March projections. Staff now see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. For inflation excluding energy and food, staff project an average of 2.8% in 2024, 2.2% in 2025 and 2.0% in 2026. Economic growth is expected to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.

 

At its meeting on 11 April 2024, the Governing Council decided to keep the three key ECB interest rates unchanged. The incoming information broadly confirmed the Governing Council’s previous assessment of the medium-term inflation outlook. Inflation has continued to fall, led by lower food and goods price inflation. Most measures of underlying inflation are easing, wage growth is gradually moderating, and firms are absorbing part of the rise in labour costs in their profits. Financing conditions remain restrictive and the past interest rate increases continue to weigh on demand, which is helping to push down inflation. But domestic price pressures are strong and are keeping services price inflation high.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It considers that the key ECB interest rates are at levels that are making a substantial contribution to the ongoing disinflation process. The Governing Council’s future decisions will ensure that the key ECB interest rates will stay sufficiently restrictive for as long as necessary. If the updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase the Governing Council’s confidence that inflation is converging to its target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction. In any event, the Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction, and it is not pre-committing to a particular rate path.

 

At its meeting on 7 March 2024, the Governing Council decided to keep the three key ECB interest rates unchanged. Since its monetary policy meeting on 25 January 2024, inflation has declined further. In the March 2024 ECB staff macroeconomic projections for the euro area, inflation has been revised down, in particular for 2024 which mainly reflects a lower contribution from energy prices. Staff now project inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026. Although most measures of underlying inflation have eased further, domestic price pressures remain high, in part owing to strong growth in wages. Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation. Staff have revised down their growth projection for 2024 to 0.6%, with economic activity expected to remain subdued in the near term. Thereafter, staff expect the economy to pick up and to grow at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later also by investment.

 

At its meeting on 25 January 2024, the Governing Council decided to keep the three key ECB interest rates unchanged. The incoming information broadly confirmed its previous assessment of the medium-term inflation outlook. Aside from an energy-related upward base effect on headline inflation, the declining trend in underlying inflation has continued, and the past interest rate increases keep being transmitted forcefully into financing conditions. Tight financing conditions are dampening demand, and this is helping to push down inflation.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.

The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission

 

The Governing Council decided at its meeting on 14 December 2023 to keep the three key ECB interest rates unchanged. While inflation has dropped in recent months, it is likely to pick up again temporarily in the near term.^[1] According to the December 2023 Eurosystem staff macroeconomic projections for the euro area, inflation is expected to decline gradually over the course of 2024, before approaching the Governing Council’s 2% target in 2025. Overall, Eurosystem staff expect headline inflation to average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. Compared with the September 2023 ECB staff macroeconomic projections for the euro area, this amounts to a downward revision for 2023 and especially for 2024.

Underlying inflation has eased further. But domestic price pressures remain elevated, primarily owing to strong growth in unit labour costs. Eurosystem staff expect inflation excluding energy and food to average 5.0% in 2023, 2.7% in 2024, 2.3% in 2025 and 2.1% in 2026.

 

The Governing Council decided at its meeting on 26 October 2023 to keep the three key ECB interest rates unchanged. The incoming information has broadly confirmed its previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. The Governing Council’s past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.