On September 26, 2024, leading economic institutes in Germany projected a slight contraction of the economy, forecasting a 0.1% decrease in Gross Domestic Product (GDP) for the year. This marks the second consecutive year of negative growth for Germany, a situation not seen in two decades.
The forecast was jointly issued by five top economic institutes, including the German Institute for Economic Research (DIW) in Berlin and the Ifo Institute in Munich. The revised predictions come as the German government prepares to update its own economic outlook.
While a recovery is anticipated in 2025 and 2026, with growth rates expected to reach 0.8% and 1.3% respectively, current conditions reflect the lowest growth rates among major industrial nations, as noted by the Organisation for Economic Co-operation and Development (OECD).
Economic experts attribute the downturn not only to recession but also to structural changes, including a shift away from coal, digitalization, demographic changes, and increasing competition from Chinese businesses. There is growing concern among businesses, with many seeking assistance due to impending bankruptcies, driven by high energy costs and bureaucratic challenges.
The economic outlook is further complicated by geopolitical uncertainties and rising interest rates, affecting consumer spending as households choose to save rather than spend. The head of the German Chamber of Commerce, Peter Adrian, emphasized the need for immediate political action to restore competitiveness through lower energy prices and taxes.
In response to these ongoing challenges, the German government had previously introduced the 'Initiative for Growth,' a package of 49 measures aimed at stimulating economic activity, although experts warn that many measures are vague or require significant time to implement. The ongoing disputes among coalition parties regarding economic policy further exacerbate the situation, raising concerns about the government's ability to effectively respond to the crisis.