Germany's economic performance in the fourth quarter of 2024 was characterized by stagnation, declining exports, and uneven sectoral performance. The GDP contracted by 0.2 percent both quarterly and annually, in line with the forecasts, reflecting persistent structural challenges and subdued global demand.

Exports experienced a sharp contraction of 2.2 percent, marking the most significant decline since mid-2020. This decline was driven largely by a 3.4 percent drop in goods exports. This decline was compounded by sluggish industrial output, with manufacturing experiencing its seventh consecutive contraction (minus 0.6 percent). Notably, the automotive and machinery sectors suffered the most, highlighting vulnerabilities in Germany's export-driven economy.

Despite these downturns, domestic consumption provided a partial cushion. Household consumption increased by 0.1 percent, supported by increased spending on health services and essential goods. Government consumption also grew (0.4 percent), driven by rising social benefits. Investment in construction activities rose slightly (1.0 percent) due to favourable weather, contrasting with ongoing declines in machinery investment (minus 0.3 percent).

Labor market stability offered a silver lining, with employment levels remaining unchanged. However, declining labor productivity (minus 1.1 percent) signals inefficiencies. Germany lags compared to other EU economies, with its minus 0.2 percent annual contraction falling behind the EU's 1.1 percent growth. The report underscores Germany's reliance on exports and the pressing need for domestic stimulus to counteract external shocks, taking the RPI to minus 4 and the RPI-P to 5, meaning that economic activities in Germany are within the consensus for the economy.

The consensus sees quarterly GDP unrevised at minus 0.2 percent in the Q4 flash and the same minus 0.2 percent on year, unrevised.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about two weeks earlier, the second report incorporates additional data to provide a more accurate reading. It also contains details of the key GDP expenditure components and full national accounts.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.