Despite current developments including the war in Ukraine and coronavirus returning to China, Germany’s economy is still expected to grow - albeit at a lower level than forecast earlier this year.
The current economic situation
A number of economic analyses forecast 2022 as the year of strong recovery for the German economy after the coronavirus pandemic. The economic effects of the global pandemic have been less severe in Germany than previously expected. The federal government's comprehensive and rapid support for companies since the beginning of the crisis has proven effective to date. A resumption of social and economic activities - with the removal of restrictions - is stimulating the economy.
The situation in the service industries has brightened significantly, with positive developments signalled in the retail trade and hospitality sectors in particular.
German industry can also look to well-stocked order books and worldwide demand for German goods, with exports increasing by almost 10 percent in 2021.
The domestic labor market is also showing signs of recovery. Many job openings led to a significant decrease in rates of unemployment. The Federal Employment Agency reports an unemployment rate of five percent at the end of April 2022 compared to six percent in April 2021.
However, the ongoing Russia-Ukraine conflict has adversely impacted on the previously high confidence levels of just a few months ago - particularly in German industry. Sanctions imposed on Russia will have a negative impact on the domestic economy and consumption. Supply chain disruptions and increased prices are dampening near-term growth prospects.
According to data published by the Federal Ministry for Economic Affairs and Climate Action (BMWK), Germany’s GDP grew by 2.9 percent in 2021, having declined by 4.6 percent in 2020. Before the start of the war in Ukraine, the German government expected growth of 3.6 percent for the year 2022. This projection was recently revised to 2.2 percent.
Forecasts made by the European Commission (EC) have also been revised. This resulted in significant reductions of GDP projections for the vast majority of European member states. The EC also points out the economic improvements in Germany as mentioned above, but is more sceptical of the impact the Ukrainian war will have on the economy. According to the EC, Germany's economy will grow at a rate of 1.6 percent in 2022.
Having felt the impact of the severe global economic downturn caused by Covid-19 in 2020, Germany recorded a nine percent drop in FDI projects two years ago. Fortunately, 2021 saw a big comeback as Germany Trade & Invest recorded a seven percent increase that elevated greenfield project numbers to 1,806.
Germany’s reputation as a FDI safe haven helped maintain stability in an otherwise unstable environment. In 2020 and 2021, Germany received the majority of greenfield projects in Europe. The country's reputation as Europe’s most attractive business location helped to keep the slump within limits and generate better results than previously expected.
For more information please see the results of the GTAI 2021 FDI Report.