🦜 PerchPulse - Germany Market Update August 2022 🦜

PerchPulse - German Market Update August 2022 

The latest and most relevant info on talent, immigration, business, and cost of living in Germany, to help HR people stay close to events and support their people strategy.

A big feathery welcome!

Hey there! Welcome to PerchPeek's August 2022 German Market Update! PerchPeek’s relocation specialists are here to offer insight into top mobility challenges and industry trends. We’re always keeping up with the latest international market trends that matter most to HR leaders, their teams, and their employees, helping them move and support their employees globally. Each month, we curate a monthly newsletter that includes our research and insights to better assist as many HR professionals as possible. We hope you enjoy reading!

Fly-by summary:

  • We have some good news for German workers! The government has implemented tax reductions, increased minimum wages, and increased pensions for retirees in an effort to attract more workforce talent. 
  • Germany's unemployment rate rose to a nine-month high of 5.4% in July, fueled by Ukraine war refugees registering with the country’s labour office.
  • Adjustment of the Notifications Acts that govern employer-employee relationships in the workplace is effective as of August 1st, 2022. The breach of this law attracts a fine of 2,000 euros, increasing protection and rights of workers.
  • Renting in Germany is almost 50% cheaper in the US. However, it can still eat up to 40% of a person’s total income– despite the government’s wage hike.
  • The cost of living has gone up in Germany due to major inflation. The energy crisis caused by the Ukraine war has hit the German economy the hardest due to its former reliance on Russian energy supplies.
  • The business confidence index in Germany has dropped to a two-year low. The government has implemented various strategies to prevent a recession.

Talent & Migration 

Good News for Germans Amidst Rising Unemployment

Beyond the impact of Ukrainians registering at the German labour office, the "labour market as a whole continues to be stable," Federal Labour Agency Chief Detlef Scheele said.

Meanwhile, the government has been taking actions to make employment more attractive:

  1. The two wage hikes for employees resulted in a 6% increase in minimum wages (to 10.45 euros per hour) and are projected to reach 12 euros per hour in October following the third hike.
  2. A worker tax cut means that the first 10,347 euros of employee income remain free from income tax this year. Income tax bills for the first six months of 2022 will be paid back to workers.
  3. The government has modified the Notifications Acts, effective August 1st, 2022, which improves the rights and protections of workers. Employers and employees must have an agreement on work terms, such as 
  1. end date for a fixed-term employment contract; 
  2. remuneration of overtime as well as the employer's right to request overtime and the respective legal requirements; 
  3. due date for all payments and the form in which payments are made;
  4. three weeks' notice before terminating employment, amongst others.
  1. There has also been a 5% increase for pensioners in Germany.

The government’s aim is to boost workplace productivity and the economy by increasing disposable income, despite ongoing inflation. With an increase in labour supply, and increasing attractiveness of employment, there may be good opportunities to make new hires.

Housing

Fair Pricing in Competitive Markets

According to recent surveys, apartment rentals are the most common in Germany, accounting for 57% of all households. On the flip side, Germany has the lowest private property ownership; just 43% of households are privately owned compared to the European average of 70%. The rental market has become drastically more competitive due to the influx of Ukrainian refugees searching for homes. 

In fact, PerchPeek has seen availability for short-term accommodations reduce by more than 90% in the past nine months; also a result of Ukrainian demand and limited supply.

Rental prices vary from city to city, with Munich having the highest average rental fees. The average rent for a one-bedroom apartment in the largest German cities includes:

  •  Leipzig €512
  •  Cologne €730
  •  Stuttgart €857
  •  Berlin €879
  •  Frankfurt €901
  •  Hamburg €911
  • Munich €1,125

Renting is reasonably affordable, especially when compared to other countries. Housing in the US is still 49.4% more expensive than in Germany. For those on a tight budget, the cheapest rooms in Germany can be found in Saxony-Anhalt, specifically in the cities of Magdeburg and Halle. A WG room in Magdeburg costs 259 euros a month, according to Empirica's study, while a room in Halle will set you back 260 euros a month. Cheap rooms can also be found in Erfurt in Thuringia (300 euros a month), Paderborn in North Rhine-Westphalia (305 euros a month), and Leipzig in Saxony (320 euros a month).

Despite a 6.6% drop in housing prices, the cost of owning a property is still increasing due to rising inflation, increased costs of construction and higher mortgages as interest rates go up. 

 

Cost of Living

Inflation Hit Germany the Hardest

The major driver of inflation in Germany is the cost of energy. Due to the political situation surrounding the Ukraine war and Germany’s historically heavy reliance on Russia for its imports, the reductions in gas supplied to Germany and the rest of Europe have massively increased the cost of energy. In fact, the German government had to bail out its largest energy company, Uniper, in late July. The supply shock has caused household gas and food expenditures to increase dramatically.

In these challenging times, it is important that employers and their HR teams look for ways to support their people and try to cushion the impact of rising inflation for workers. 

Business & Economy: At the Mercy of Russian Gas

While other countries report negative GDPs, the German economy isn’t fairing as badly. In fact, the German economy grew slightly over the last month while the GDP stagnated in the second quarter. GDP stagnation is neither good nor bad considering other countries are reporting economic decline. However, there are major concerns surrounding the gas supply for businesses and households this winter. After the reopening of the NordStream1 pipeline, Germany's gas reserves stood at around 67%, which is predicted to be insufficient for Germans this winter. 

Similarly, confidence in German business is at a two-year low. The Ifo Institute for Economic Research said its monthly confidence index, a leading indicator for Europe's biggest economy, dropped to 88.6 points in July from 92.2 the previous month. It was the second consecutive fall, taking the index to its lowest point since June 2020.

The government aims to fill up the gas reserve to 95% of its full capacity and make structural changes in the economy to avoid recession. Improvements will include workers' welfare in the workplace and boosting investment in the economy by encouraging spending.

Conclusion

With rising energy costs and falling confidence in businesses, it’s not an easy time for Germans. Now more than ever, it is essential to stay close to the needs of your workers and support them through these challenges.

The positive news is that the German government is taking steps to make sure people are still attracted to living and working in Germany. Through tax cuts, minimum wage improvements, and encouraging positive workplace ethics, there is still hope for brighter days ahead! 

Thanks for reading. We’ll see you next month!

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