The German government has predicted the country will see just 0.2% growth in 2024 – a development the finance minister has described as “dramatically bad”.
Speaking in Leipzig, finance minister Robert Habeck – tipped by many as Germany’s next Chancellor – warned the nation could not continue as it had, indicating drastic action may be on the horizon. The previous prediction had been for 1.3% growth in 2024.
Habeck, who also serves as vice chancellor, made his remarks while visiting the towns of Leipzig, Jena, Erfurt and Schmalkalden. The trip, according to his own ministry, was to focus on “the topic of securing skilled workers”. According to German newspaper Zeit, Habeck suggested one reason for the weakening economic outlook was a recent court ruling around phasing out the energy price brakes put in place at the end of last year.
International geopolitics is also playing a role. The German government announced a policy in 2022 of doubling its military budget following Russia’s invasion of Ukraine. This has become more pertinent since former US president Donald Trump has indicated a more insular approach to the US’s foreign policy in recent days. Also highlighted by Zeit was the lack of cheap gas for manufacturing that originated in previous years from Russia, along with the growing economic strength of China.
Economic struggles
Even national broadcaster Deutsche Welle has acknowledged Germany is in decline. A recent video the broadcaster placed on YouTube referenced recent transport strikes, farmer protests, and a €17bn hole in the national budget. The country also has a rapidly-ageing population and a lack of investment in infrastructure and education. As Deutsche Welle business reporter Kate Ferguson noted: “Germany, once the beacon of European fiscal stability, is struggling.” So much so, in fact, that Handelsblatt wrote this week that the economy shrank by 0.3 per cent in 2023.
Not all outlooks have been so gloomy, though, with the Munich-based ifo Institute noting in December that the German economy was set for recovery. “Inflation is declining further,” it wrote, “wage income is rising at strong rates and employment is higher than ever before in reunified Germany.
“This means that purchasing power is returning and overall economic demand should pick up again. Price-adjusted gross domestic product (GDP) is expected to rise by 0.9% next year [2024], following a decline of 0.3% this year. The economy should then normalize in 2025. Price-adjusted GDP is likely to increase by 1.3% compared to the previous year.”
