Germany braces for recession in 2024

Germany is set to slip further into recession this year, with German Economy Minister Robert Habeck (Greens) announcing a slash to the government’s previous 2024 forecast and now expecting GDP to contract by 0.2% GDP this year.

In Germany, growth has been stagnant since 2018, with deep-rooted structural problems plaguing the country.

"Since 2000, we've seen an average growth of just 1%, [...] and effectively no growth at all over the past six years," Habeck said at a conference in Berlin on Wednesday.

Down from a spring forecast of 0.3% growth, the government is now predicting a recession and expects the country's GDP to shrink by 0.2% in inflation-adjusted terms this year.

Growth is only likely to pick up again in 2025, the minister added.

Trade tensions with China and the US are adding pressure on Germany's export-dependent companies. Habeck noted that Germany is currently losing market share in China, while protectionist US policies further restrict free trade.

In addition to these geopolitical challenges, Habeck pointed to long-term structural deficits as the root cause of Germany's economic woes. Underinvestment in infrastructure and digitalisation, decades of dependence on Russian energy, an ageing population and a shortage of skilled workers undermine the country's competitiveness.

Growth Initiative as the Solution

To address these challenges, the government has launched a "Growth Initiative," a package of measures to tackle structural weaknesses and reignite economic growth by 2025. The initiative focuses on stimulating investment, cutting red tape, and attracting skilled workers.

Habeck stressed the importance of cutting red tape and building a climate-neutral energy system without overburdening the economy. A key aspect of the plan is to reduce grid fees to ease the burden on businesses.

Despite the deep-seated problems, there are some positive developments. The government's autumn forecast shows inflation falling and real incomes rising. That could boost consumer spending. "In the last three to four quarters, people have become wealthier again, by an average of 5%," he added.

The German government forecasts growth of 1.1% of the GDP in 2025, rising to 1.6% in 2026.

However, these positive signals alone will not solve the country's problems. Deep-rooted problems - from skills shortages to infrastructure gaps - require comprehensive and long-term reforms.

"Yes, there are problems, there are challenges, and the challenges are bigger than we perhaps admitted in recent years," Habeck acknowledged. Whether the “Growth Initiative” will revive Europe’s so-called “sick man” remains to be seen.

(Jeremias Lin | Euractiv.com)