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Germany’s economy took another hit in 2024, marking the second consecutive year of contraction for Europe’s major manufacturing hub. According to the Federal Statistics Office, the economy shrank by 0.2% last year, following a 0.3% drop in 2023—aligning with economists’ predictions for a 0.2% decline.
“Germany is going through an unprecedented period of stagnation,” remarked Timo Wollmershäuser, an economist at the Munich-based think-tank, Ifo. He noted Germany’s subpar performance compared to other countries. This acknowledgment of Germany’s prolonged economic crisis comes just six weeks before a pivotal snap election.
The election debates are centered around pressing issues like deindustrialization, deteriorating infrastructure, and the controversial debt brake that limits public spending. Friedrich Merz, leader of the center-right Christian Democratic Union and the probable next chancellor, is advocating a reform agenda. His promises include cutting red tape and taxes, as well as reducing welfare benefits for those not in the workforce.
While private sector production dipped, government spending saw a significant rise of 2.6% compared to 2023. Ruth Brand, president of the Federal Statistics Office, attributed the economic slump to a mix of cyclical and structural challenges. She highlighted the increasing competition in the export sector, high energy expenses, persistent interest rates, and an uncertain economic future.
Output declined by 0.1% in the last quarter of the year compared to the previous quarter, which surprised many. Robin Winkler, Deutsche Bank’s chief economist for Germany, expressed concern about this unexpected contraction, suggesting it was likely fueled by political uncertainties in both Berlin and Washington.
The Bundesbank had foreseen this continued stagnation, predicting minimal growth of just 0.1% this year and cautioning against potential impacts from a trade conflict with the US. US president-elect Donald Trump has threatened to introduce up to 20% tariffs on all imports to the US.
Germany faces an uphill battle, grappling with an automotive industry crisis brought on by Chinese competition and costly shifts towards electric vehicles. This is compounded by high energy prices and weak consumer demand. Manufacturing output plummeted by 3%, while corporate investments dropped by 2.8%, according to Wednesday’s report.
Since the pandemic began, Germany has experienced little to no significant economic growth. Industrial production remains over 10% below its peak, and unemployment is once again on the rise following record lows.
