Germany expecting economic slump despite improving sentiment

An important economic sentiment index posted a surprising rebound on Tuesday, but Germany is still reportedly expecting the worst recession since World War II.

Germany expecting economic slump despite improving sentiment
Photo: DPA

The ZEW index notched up its first positive reading in almost two years, pointing to a possible pick-up in Europe’s biggest economy in the second half of 2009.

The index, which measures the confidence of players in financial markets, rose by 16.5 points from minus 3.5 points in March to 13 points in April, the sixth consecutive rise and the first positive reading since July 2007.

The result was much better than expected, and suggested that it was “even becoming more likely that the economy will slowly recover in the second half of this year,” the ZEW’s president Wolfgang Franz in a statement.

“Along with other indicators, the ZEW sentiment indicator reveals that there are well-founded expectations that the downward dynamics of the business cycle are bottoming out,” he added.

The institute, which surveys around 350 fund managers, economists and analysts every month, said that the uptick was thanks to the German government’s efforts to stimulate the economy, and to low inflation.

Those surveyed were also more positive about economic prospects in the eurozone as a whole, the United States and China, the ZEW said. Indications from elsewhere have also suggested that there may be light at the end of the tunnel for the world economy, which according to the International Monetary Fund is suffering a prolonged and deep recession.

The Organisation for Economic Cooperation and Development (OECD) said earlier this month that fragile signs were emerging in some major economies that the worst slowdown in decades is easing.

In Germany, data showed industrial output falling 2.9 percent in February from January, much less than the 6.1 percent slump seen the previous month and beating analysts’ expectations.

German Chancellor Angela Merkel said at a large trade fair on Monday that the large number of exhibitors was perhaps a “small signal that we are slowly reaching the low point.”

But the world economy, Germany included, is still a long way from being out of the woods.

A report in Germany’s Süddeutsche Zeitung on Tuesday said that the

government is preparing to revise sharply downwards its current forecast for

2009 output to a fall of five percent.

Government sources told the paper that a severe slump in industrial orders was behind the grim downward revision.

“The government agrees that there will be a reduction of five percent at the end, even when some coalition leaders try to optically improve the official estimate by slipping a four before the decimal,” the paper said.

Berlin had previously forecast a contraction of gross domestic product (GDP) by 2.25 percent for 2009, but the first quarter has been so disappointing that experts have said for weeks that was far too optimistic.

But Chancellor Angela Merkel has set about spreading economic good cheer, saying on Monday at the Hannover industrial technology fair that the country may have reached the low point of the recession.

The German Engineering Federation (VDMA) is also hoping for a swift stabilisation.

“We estimate the end of the present downswing in new orders by mid-year,” VDMA head Hannes Hesse said. But he added that the industrial sector would likely produce 20 percent less than in 2008 and shed some 25,000 jobs.

Meanwhile the German Electrical and Electronic Manufacturers’ Association (ZVEI) predicted a 10 percent drop in production, with some two-thirds of workers already suffering from reduced hours and layoffs on the horizon, the paper reported.

Mario Gruppe, economist at German bank NordLB, said the ZEW figures were “to be welcomed” but stressed: “For us, it is still too early to sound the all-clear.”

“We warn against too much euphoria. There are still some painful months

ahead of us,” he said.

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7 tips for how to survive as a freelancer in Germany

Taking the decision to go it alone and freelance in Germany can be a daunting prospect. But, if you do it right, it can be an exciting and liberating path. Here are some of our top tips on how to survive.

7 tips for how to survive as a freelancer in Germany

1. Get a tax advisor

The German tax system is complicated, even for Germans. All the associated paperwork uses the Amtsprache (authority language) which is more like legalese than ‘normal’ German, and mistakes when filling out tax forms can cause you, at best, a massive headache and, at worst, a costly fine. So it’s best that you employ someone who knows what they’re doing to help you out.

That person is called a Steuerberater (tax advisor) in Germany. They will help you register with the tax office, correspond with them and submit your tax declarations.

Be aware that, in Germany, different deadlines apply for tax returns depending on whether you employ an official tax advisor or not. If you are doing the tax return on your own, the deadline for submitting your annual tax return is earlier than if you use a tax advisor’s services. 

READ ALSO: What NOT to do when you’re freelancing in Germany

When looking for a tax advisor, a top tip is to use your network to get recommendations. Ideally, you want someone who will do more than just fill in the forms for you, but who will actually advise you on how best to manage your business finances so that you can make tax savings.

2. Keep your accounting in order

The better you keep your own accounts in order, the easier it will be for your tax advisor to compile your tax declarations and therefore the cheaper their services will be.

As a freelancer, there are a lot of costs you can deduct from your taxes – from train tickets, working materials, to meals out – so it’s best to keep hold of all your receipts and to keep them in good order.

2 euros and 50 cents lie on a receipt in a beer garden. Photo: picture alliance/dpa | Peter Kneffel

In Germany, you’re obliged to keep hold of receipts for two years, in case of a tax inspection, so it’s a good idea to photocopy the type of machine-printed receipts you get from restaurants so that they stay legible for a long time.

There are also a few things to be aware of when writing your own invoices. Firstly, make sure that you include your tax number. This isn’t the 11-digit Steueridentifikationsnummer that everyone gets when registering in Germany, but the 10-digit Steuernummer you get from the Finanzamt after registering yourself as a freelancer. 

Most companies won’t pay you if you don’t have this on your invoices so make sure you include it.

You should also make sure that you number your invoices properly – ideally in ascending order so that you can easily keep track of them. You are not allowed to issue two invoices with the same number and if you do so and the finance office notices, you could face an inspection of your whole accounting system.

There are numerous great accounting software programmes you can use to help you, such as Lexoffice and Sevdesk and, even if you have to pay for them, the costs will be tax deductible!

3. Find out if you’re eligible for financial support

In Germany, there are several opportunities for freelancers to gain financial support and to cut their outgoings, and its worth finding out if you’re eligible for them.

If you’re claiming unemployment benefits under ALG 1 and are thinking about becoming a freelancer, the employment office offers a special type of financial support to help you to get your freelance business off the ground.

Called the Grundungszuschuss (“foundation grant”) the payment is a six-month grant equalling your monthly entitlement under ALG 1 plus €300 towards your insurance costs can be applied for those in receipt of this unemployment benefit.

READ ALSO: Will freelancers benefit from Germany’s €300 energy allowance?

If you are engaged in some form of artistic profession in Germany – which can include journalism to pottery – you may be entitled to membership to the Kunstlersozialkasse (artists’ social insurance).

Being a member of the KSK means you only have to pay half of your health insurance and pension contributions, and the KSK will pay the rest.

4. Work out how much you think you will earn

As with starting any business, you need to have some idea of your expected earnings from the outset.

If you’re just starting out as a freelancer, or have some freelance gigs on the side of an employment position, then it might be worth considering registering yourself as a Kleinunternehmer (“small business”).

As a Kleinunternehmer, you can currently earn up to €22.000 per year without having to charge VAT and having to submit only yearly tax declarations. 

An income tax declaration form lies on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Hans-Jürgen Wiedl

Be aware that if you are registered as this kind of freelancer, you must include the following sentence in your invoices: ‘Gemäß § 19 UStG wird keine Umsatzsteuer berechnet’ which means ‘In accordance with Paragrah19 of the German VAT law, no VAT has been added to this invoice.’

READ ALSO: Everything you need to know about your German tax return in 2022

If you think you will earn more than €22.000 per year, you will need to pay Umsatzsteuer (VAT) and will have to submit tax declarations in advance and more often. Depending on how much you earn, this could be every month or every quarter. 

5. Get your insurance in order

In Germany, it’s a legal requirement to have health insurance.

If you’ve just made the move from employment to being a freelancer and want to keep the same health insurer, you should get in contact with your health insurance provider straight away to tell them about your change of circumstances. They will ask you to re-register and to tell them your projected freelance earnings for the year, so they can amend your monthly fees.

If you don’t keep your health insurer provider updated, you could continue to be charged the higher rate that you had from your previous salary.

The insurance cards of the health insurance companies DAK, AOK, Barmer and Techniker-Krankenkasse TK lie with euro notes under a stethoscope. Photo: picture alliance / dpa | Daniel Karmann

It’s not just health insurance you need to think about as a freelancer. It’s also wise to think about protecting yourself from any sort of claims that could arise as a result of any working mishaps. 

If, for example, you lose your laptop which contains confidential client information, you need to be protected against claims.

That’s why it’s good to have both Betriebshaftversicherung (business liability insurance) and Rechtschutzversicherung (legal protection insurance).

6. Plan your time wisely

All of these bureaucratic obligations take time. So it’s really important that you take account of that when planning your time. For example, planning half a day a week to deal with your invoices, filing, emails to clients, and conversations with authorities can be really beneficial when scheduling your working time. 

7. Grow your network

As a freelancer, networking is absolutely crucial to success. 

Keep an up-to-date profile on websites like LinkedIn and German equivalent XING and keep in contact with anyone you’ve ever worked with, no matter how brief the contact was. 

Having a network is not only about getting more clients, but also about building a support network in your field to exchange advice, tips and generally for your own enrichment. 

Participating in workshops related to your field, going to seminars, and meet-ups, can be great ways of broadening your network.