Germany’s economy shrank for a second consecutive year in 2024 and is unlikely to grow much in 2025, laying bare the challenge for the country’s new government once snap elections are held in February.
Gross domestic product fell by 0.2 per cent after dropping 0.3 per cent in 2023, the statistics office said on Wednesday. It is only the second time since 1950 that output has contracted for two years in a row.
The struggles of the continent’s largest economy are an overriding theme of an election that many hope will bring more growth-oriented policies capable of helping drag the 20-nation euro zone out of its own rut.
But few foresee quick fixes to issues that include weak global demand, a manufacturing malaise – particularly among carmakers – the lingering effects of the energy crisis, stifling red tape and a dearth of skilled workers.
“Germany is going through by far the longest phase of stagnation in postwar history,” said Timo Wollmershäuser, who heads forecasting at the Ifo institute. “It is also falling behind considerably in an international comparison.”
Ifo predicts “barely perceptible” growth of 0.4 per cent this year.
Germany was the only Group of Seven economy to shrink in 2023 and is the first to publish full-year numbers for 2024. Its prospects for 2025, however, remain bleak. The Bundesbank predicts growth of just 0.2 per cent and warns that another contraction is even possible if US president-elect Donald Trump follows through on his tariff threats.
To get the economy back on track, “we need convincing answers from politicians and companies to the major transformative challenges,” said KfW Research economist Klaus Borger.
How the next government deals with German limits on state borrowing and deficits, known as the debt brake, will be crucial. The stringent rules, long championed by conservative politicians, may be overhauled to allow for more flexibility to fund investments in things like infrastructure, energy and defence.
Germany’s statisticians said fourth-quarter GDP dropped 0.1 per cent from the previous three months – a development that Deutsche Bank economist Robin Winkler described as a worrying surprise.
“If this were to be confirmed, the German economy would have lost momentum again at the beginning of winter,” he said. – Bloomberg
