Germany's economy contracted for the second consecutive year in 2024, with a decrease of 0.2% following a 0.3% decline in 2023, marking the first two-year contraction since 2003, according to Germany's federal statistics agency Destatis.
This downturn contrasts sharply with the U.S., which has experienced robust growth during the same period. Factors including heightened competition for exports, rising energy costs, and sustained high interest rates have hindered Germany's economic recovery.
Salomon Fiedler, an economist at Berenberg Bank, noted that numerous factors are impeding growth, suggesting a return to previous growth rates is unlikely. The German economy, once a leader in Europe, has struggled since 2018 when increasing global protectionism began to affect its export-driven market.
Industrial production remains significantly below pre-pandemic levels, with a 15% drop recorded in November compared to 2017. The automotive sector, a critical component of the economy, has also lagged in adapting to electric vehicle production, resulting in workforce reductions at major companies like Volkswagen.
Looking ahead, Germany's central bank, the Bundesbank, forecasts only a 0.2% growth in 2025, while the Kiel Institute predicts stagnation for this year. The potential for renewed U.S. import tariffs under the incoming Trump administration could further strain the German economy, possibly reducing GDP by up to 1.2 percentage points.
The economic situation is expected to influence voter sentiment in the national elections scheduled for next month, particularly following the collapse of the governing coalition. A new government may consider loosening fiscal constraints to stimulate public investment, especially in defense.
With the European Central Bank anticipated to lower interest rates this year, there is hope for economic stimulation. However, the potential for a fragmented parliament could complicate policy-making, particularly with far-right or far-left parties gaining traction.