Despite current developments - including the war in Ukraine, the global energy crunch and the threat of a global economic recession - Germany’s economy remains solid thanks to its robust backbone economy.
Covid-19 impact less severe than forecast
As the year 2022 began, a number of economic analyses predicted a year of economic recovery and growth. Moderate Covid-19 infection rates allowed the German government to ease most Covid-19 restrictions in early 2022. Overall economic development in Germany is no longer particularly affected by Covid-19 implications.
Effects of the war on Ukraine
European economies have been hit by a severe external shock - the Russian invasion in Ukraine. This has caused a variety of problems, more specifically for energy supply and energy prices in Europe. Together with the recurring shutdown in China, Russia's attack on Ukraine has slowed down global supply chains. These factors have contributed to drive price increases across all sectors and commodity groups across Germany and Europe. Ongoing global uncertainty has weakened demand for industry products.
Stable German economy
Despite this global uncertainty, Germany's economy can however point to a number of stabilizing factors. Growing domestic and international demand for products and services “Made in Germany,” combined with a robust labor market provided a boost in GDP of 0.8 percent in the first quarter of 2022, returning GDP to pre-pandemic levels. At present, the government is expecting an overall GDP growth of 1.4 percent for the current year.
The discontinuation of most pandemic protection measures has also given previously restricted service providers and the retail sector a strong boost. Private savings, which reached an all-time high during the pandemic, are now reduced creating an ever-growing demand in tourism and leisure as well as the food service sector.
Germany’s reputation as a FDI safe haven has helped maintain stability. In 2020 and 2021, Germany received the majority of greenfield projects in Europe and will most probably do so again in 2022. Please see the results of the GTAI 2021 FDI Report for more information.
Although greenfield investments currently remain volatile, Germany’s reputation as Europe’s most attractive business location has remained intact in recent years.
External factors have limited economic exchange and business activity throughout the world in recent times. However, large investments made by multinational companies in Germany show that the attractiveness of Germany as a business location remains undiminished. Germany continues to be a place for forward-looking investments as significant investments by Tesla and Intel in Germany show.