Analysts were not surprised that the German government was forced to revise its forecasts for this year earlier this week. According to the latest, and perhaps the last, estimates, the German economy will end this year with a contraction of 0.2%, which indicates that it will not be easy to recover from the tragic recession after its decline of 0.3% the previous year.
Year-on-year percentage change in German GDP.
Before 2023, the economy had last experienced recessions in 2020 and 2009. The most recent example of a two-year decline was the period 2002-2003: with minus 0.2 and minus 0.5 percent. There was no example of a similar crisis in the years before this, but it is worth examining the data only up to 1990, until the reunification of the two countries.
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Economy Minister Robert Habeck, who at the end of April forecast a 0.3 percent expansion for 2024, published on Wednesday what the recovery might look like:
- 2025: 1.1 percent
- 2026: 1.6% growth is planned.
In order to turn this speculation into reality, several tasks lie ahead for the economy's actors: improving energy security, managing excessive bureaucracy, and quickly addressing the skilled labor shortage.
These are not just theoretical problems: just think about the negative news of the past period, for example Volkswagen's plan to close its German factories, or Intel To postpone the chip manufacturer's €30 billion investment.
At the moment, it is highly questionable how impactful the government's package of measures in July, which would have jump-started the economy by boosting private and public investment, accelerating the expansion of renewables and reducing bureaucracy, will be effective. In the summer, the Cabinet still thought all this might mean a half-percent increase.
However, according to management, there are several things that could support growth next year:
- Because of higher wages, household consumption increases
- Low inflation
- Tax advantages
- Low interest rate environment
- More favorable financing conditions, more investments
There are those who believe that this is still not enough. This was stated by Peter Adrian, head of the German industrial lobby organization DIHK To BloombergHe added that the growth support measures taken by the government were reasonable and long overdue, but they would not be sufficient.
Ringing alarm bells, he points to the fact that some German companies are considering moving abroad, that industrial production is declining, some stores are closing their doors, and more and more companies are going bankrupt. According to him, the first and most urgent measure for small and medium-sized companies will be to reduce energy prices. Besides taxes and fees for using the system, they pay four times the European average.
