Germany’s economy shrank / Photo: Getty Images
Germany, Europe’s largest economy, suffered a new contraction in 2024, confirming the difficult economic situation in the country. According to data released by the Federal Statistical Office, Germany’s economy shrank by 0.2% for the whole year and by 0.1% in the fourth quarter. This is the second year in a row that the country’s economy has been in decline, the Financial Times reports .
Factors affecting the economic situation
Ruth Brand, Head of the Statistical Office, emphasised that cyclical and structural difficulties did not allow for better results in 2024. One of the main reasons is high energy costs, higher interest rates, and increased foreign competition. According to her, Germany also faced challenges in international markets, in particular due to lower demand for exports and pressure from China.
Falling exports and deteriorating prospects
As a country heavily dependent on exports, Germany is feeling the impact of weak global demand. In 2024, Germany’s exports declined by 0.8%, which had a significant impact on the economic situation. Economists such as LBBW’s Jens-Oliver Nicklasch warn that the negative dynamics could intensify in 2025 due to the possible introduction of high tariffs by the new US President Donald Trump. Nicklasz predicts that 2025 could be the third consecutive year of recession.
Outlook for 2025: Is Germany facing a new recession?
Despite hopes for a recovery in the fourth quarter of 2024, economists say these expectations have not been met. If the negative growth continues in the first quarter of 2025, Germany could be back in recession, which is defined as two consecutive quarters of falling economic activity.
Jörg Kraemer, chief economist at Commerzbank, noted that there are no significant signs of improvement so far. Interest rate cuts by the European Central Bank several more times in 2025 may partially help, but many experts doubt that this will be enough to seriously restart economic policy.
The 2025 elections as an opportunity for change
Amid economic problems, Germany is expected to elect a new parliament on 23 February 2025. This could be an important moment for a reset of economic policy in the country. Franziska Palmas, Senior Economist at Capital Economics, believes that the recovery in real household income and lower interest rates may slightly stimulate consumption and construction investment, but the impact of high energy prices and weak demand for key industrial goods still remain serious obstacles to recovery.
