German Economy 2021: Q4 Forecasts & Insights

2020 saw the German GDP enter a slump in the midst of the worldwide Coronavirus crisis. After a historic 9.7% drop in GDP in the second quarter of 2020, the German economy slowly recovered with an 8.5% positive jump over the summer, but that progress was snuffed out due to a second coronavirus wave and another lockdown imposed at the end of the year. While Germany saw no further losses, its GDP effectively stagnated after accounting for inflation and other variables.

Global demand for products fell sharply in 2020 as well. Germany’s export-oriented economy experienced what was the largest decline in import and export volumes yet since the financial crisis in 2009, only trading €1.2 trillion in exports and €1.0 trillion in imports, which translated to 9.3% and 7.1% dip respectively, compared to the previous year.

The decline in trading volumes was driven by both reduced demand as well as disruption to global supply chains owing to the pandemic and to geopolitical developments, such as Brexit.

2021 has proven itself to be somewhat of a rollercoaster for the German economy, peppered with constant ups and downs and the corresponding alterations in expectations by the government.

Earlier in April, the German government raised its growth forecast for 2021 to 3.5%, slightly higher than the 3% growth it was expecting back in January. This hints at better market opportunities. The government is now expecting Europe’s largest economy to expand by 3.6% in 2022, while Germany’s leading economic institutes have also announced their expectations of seeing the GDP rise by 3.7% this year and 3.9% in 2022. Currently, the revised government GDP forecast is 3.5% for 2021 and 3.6% in 2022.

Even though export-oriented manufacturers have stood to benefit from higher demands as China and the United States struggled with the third wave of COVID-19 infections, German business morale improved only slightly, dampened by a semiconductor shortage in the motor vehicle sector.

Germany’s economy grew by 1.8% in Q3 2021, falling short of market expectations by 2.2%. The meagre recovery is mainly attributed to higher household final consumption expenditure, heavily weighed down by supply chain disruptions and shortages of raw materials, as well as a surge in energy prices. In response, the German government in October lowered its 2021 forecast for GDP growth to 2.6%, from the previously estimated 3.5%.

Employment

The German economy is well on its way to bouncing back, however, as unemployment fell by 91,000 in July, reducing the total unemployment rate to 5.7%. This is thanks to  Germany’s export sector jumping back into full gear, as global demands for German goods and services bounces back following the end of coronavirus lockdowns. This optimistic development has placed Germany ahead in the region, with unemployment expected to continue enjoying a sharp decline for the rest of the year as Daimler AG creates 3,000 more jobs at tech hubs around the country.

The startup sector creates around 430,000 new jobs every year, and Germany sees this as a significant contribution to its economy. To bolster this sector, the German government said that it would work with private investors to provide more than 50 billion euros in venture capital to help startups in the growth phase over the next few years.

Startups looking to enter the German market in 2022 can tap into a string of funding initiatives and financing opportunities that aim to boost the number of startups in Germany.

Investor confidence in Germany’s economy has also received a boost, with the ZEW institute’s gauge of expectations having risen to 31.7 in November, a leap from 22.3 in just the previous month.  The German economy is now expected to bounce back by Q1 of 2022 by 5.1%, which would be the largest increase in growth the country has seen since reunification. This makes it appealing for more business owners who are considering overseas expansion to start a business in Germany.

Germany is still considered to be one of the most international economies in the world, making it ideal for business expansion. Exports still account for approximately half of the nation’s GDP (USD $1.5 trillion), making Germany one of the three largest trading nations worldwide, behind China (USD $2.5 trillion) and the United States (USD $1.6 trillion).

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