German economy ‘scrapes past recession’

The German labour market continued to shrug off the eurozone debt crisis during February, with unemployment holding steady at low levels, while a stable first quarter should enable the economy to just scrape past a dip into recession.

German economy 'scrapes past recession'
The DIW's Fichtner and his calculations. Photo: DPA

“The labour market remains robust, despite the current economic weakness,” said the head of the Federal Labour Agency, Frank Weise, publishing new data on Wednesday.

The German economy, the biggest in Europe, contracted by 0.2 percent in the fourth quarter of 2011, but forward-looking indicators suggest the pause in growth may prove short-lived.

The German Institute for Economic Research (DIW) said on Wednesday it expected the first quarter of 2012 to be stable, with no growth, but no shrinkage. “The German economy has narrowly scraped passed a recession,” said DIW researcher Ferdinand Fichtner.

“Employment is rising strongly. And unemployment hardly changed at all, despite the unusually cold weather since mid-January. Demand for labour remains high,” Weise said.

Germany is faring better than its eurozone partners in the current crisis, thanks to deep and painful economic restructuring and a huge shake-up of its labour market undertaken during the last decade or so.

With record low unemployment, domestic demand has taken over from exports as the engine of the German economy, shoring it up against any downturn in exports as a result of the crisis.

While headline unemployment actually increased this month, with the jobless rate rising fractionally to 7.4 percent, that was due to seasonal factors, such as the winter weather which forces key sectors such as the construction industry to lay off workers.

Taking such factors into account, the jobless total actually showed no change at 2.866 million, according to separate data calculated by the Bundesbank. And the seasonally-adjusted jobless rate held steady at 6.8 percent in February.

The figures were slightly weaker than expected: analysts had been pencilling in a further decline in the jobless total this month.

But Annalisa Piazza of Newedge Strategy insisted the number was “not too bad.”

“In the past few months, the improvement of the labour market was surprisingly strong, despite signs of moderation in activity,” she said.

“As such, we would see today’s figures as a sign of ‘normalisation’ as the business cycle is far from its peak, even in the super-resilient Germany.”

Piazza ruled a sharp turn-around anytime soon.

“Indeed, there are clear signs that the labour market is still moving in the right direction,” she said.

Carsten Brzeski at ING Belgium saw the data as a signal “that the German job miracle is gradually coming to an end.”

Looking ahead, all available indicators still pointed to a further improvement in the German labour market, he said.

“However, the strong dynamics of last year will not be repeated this year. With lower growth and an unemployment rate close to the natural rate, the job miracle should gradually come to an end, entering a period of consolidation,” Brzeski said.

Christian Schulz, senior economist at Berenberg Bank, believed “the underlying positive trends in the German labour market remained intact.

“However, some signs of a slowing dynamic were also reported,” he cautioned.

“With business and consumer confidence rebounding, Germany’s economy is set to grow from the second quarter onwards, which should provide further stimulus to the labour market as well,” the economist said.

“However, at record low unemployment levels, finding suitable candidates will continue to be an issue for German companies and drag on overall growth,” he concluded.

Heinrich Bayer at Postbank predicted a stagnation in the labour market in the coming months.

But Natixis economist Felix Eschwege said he was pencilling in “a further improvement of the unemployment rate in the ongoing year to an overall rate in 2012 of 6.7 percent.”

AFP/The Local/hc

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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.