The German government cut its 2024 forecast on Wednesday for Europe’s biggest economy, saying it would contract for a second year in a row before starting a recovery in 2025.
Output is expected to contract by 0.2 percent in 2024, the economy ministry said in a statement, a sharp downgrade from the 0.3 percent expansion previously forecast.
Germany’s economy stalled in the first half of the year, and a series of disappointing indicators recently suggested that “economic weakness will remain in the second half of the year,” it said.
Germany was already the only major advanced economy to fall into recession last year, when it shrank by 0.3%, acting as a drag on the wider eurozone.
Stubbornly weak domestic and foreign demand, high interest rates and expensive energy in the wake of Russia’s war in Ukraine have weighed heavily on the German economy — particularly its critical manufacturing sector.
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At the same time, the country faces structural challenges such as an aging population, increased competition from China, burdensome bureaucracy and a complicated green transition.
“Germany’s structural problems are now taking their toll,” said Economy Minister Robert Hambeck.
“And this is happening in the midst of major geo-economic challenges. Germany and Europe are in the middle of the crises between China and the United States and they have to learn to assert themselves,” he added.
Germany’s woes have been highlighted by a string of bad news from the country’s automakers recently, as the industry’s flagship grapples with rising production costs and fierce competition from Chinese electric vehicle makers.
Volkswagen, Europe’s biggest carmaker, last month cut its full-year outlook and said it would have to consider closing factories in Germany for the first time.
Rivals BMW and Mercedes-Benz have also cut their outlook, citing falling demand in China.
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2025 optimism
However, the Ministry of Economy expressed confidence that the recovery was just around the corner.
Higher wages, easing inflation and lower interest rates are expected to encourage domestic consumption next year, the ministry said, while an improved global outlook will boost exports and industrial investment.
The economy is expected to grow by 1.1 percent in 2025, according to the latest forecast, up from a previous estimate of 1 percent.
In 2026, production is projected to increase by 1.6%.
Habeck said the government’s proposed “growth initiative” had a key role to play in the expected economic recovery.
The measures include tax breaks for companies making investments, reduced energy prices for industry, less red tape and incentives to keep older people in the workforce as well as attract foreign skilled workers.
“The economy will grow stronger,” Habeck said, if the measures are “fully implemented.”
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Business associations have warned that the measures will not be enough.
The growth package is welcome “but not close enough to really get Germany back on track,” Peter Adrian, president of the German Chamber of Commerce and Industry (DIHK), told the Rheinische Post newspaper.
Source: AFP