Germany's economy shrank for the second consecutive year in 2024, raising concerns about the country's economic prospects. The contraction, attributed to factors like high energy costs, persistent inflation, and geopolitical uncertainty, has prompted calls for economic policy reforms.
Germany's economy contracted by 0.2% in 2024, marking the country's second consecutive year of economic slowdown. This contraction, in line with economists' expectations, was revealed by data from the German statistics office, Destatis, on Wednesday.
Ruth Brand, president of the German statistics agency, attributed the sluggish growth to a confluence of factors, including intensifying competition for the German export industry in key markets, elevated energy costs, persistent high interest rates, and an uncertain economic outlook.Destatis reported that both the manufacturing and construction sectors experienced decline in 2024, while service sectors demonstrated growth. Germany has been grappling with a protracted housing crisis, linked to rising interest rates and construction costs. Several of Germany's vital industries, notably the automotive sector, have also faced considerable pressure. Automotive manufacturers have been navigating the transition to electric vehicles and contending with competition from Chinese counterparts. Despite the economic contraction, the German stock market displayed resilience, rising by 0.47% at 10:24 a.m. London time, following an already positive start to the day.Destatis also released a preliminary estimate of the gross domestic product (GDP) for the fourth quarter of 2024, indicating a 0.1% decline compared to the previous quarter when adjusted for price, seasonal, and calendar variations. The regular first reading of Germany's GDP for the fourth quarter is scheduled for release later this month. Robin Winkler, chief Germany economist at Deutsche Bank, noted that while the annual GDP contraction was anticipated, the preliminary reading for the fourth quarter was unexpected and concerning. He suggested that the current political uncertainty in both Berlin and Washington likely played a significant role in the waning momentum. Looking ahead, the German economic institute Ifo warned that without economic policy reforms, the German economy would struggle to break free from stagnation in 2025, projecting a moderate growth of 0.4% under this scenario. Ifo researchers expressed concerns that without countermeasures, manufacturing companies would continue to shift production and investments abroad, leading to weak productivity growth as value added and employment in high-productivity industries are replaced by those in service sectors with lower productivity growth. However, Ifo also highlighted that the implementation of the 'right' policies could revitalize Germany as a business destination, potentially leading to an economic expansion of up to 1%
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