Germany in the economic crisis: zero growth and gloomy forecasts!

Germany in the economic crisis: zero growth and gloomy forecasts!

The German economy is in a critical situation characterized by stagnating growth. Forecasts show that flat growth of just 0.0 percent is expected for 2025. The Economic Advisory Council has adjusted its growth expectations accordingly and agrees with the previous assessments of the European Commission, which also predicts stagnation for Germany. These estimates are a drastic departure from an earlier EU forecast, which predicted moderate growth of 0.7 percent.

Experts assume that the German economy will not experience positive growth again until 2026, with a forecast GDP growth of 1.1 percent. In its press release, the Advisory Council states that Germany is currently in a phase of economic weakness and advocates measures to promote investment-oriented use of funds.

Current economic challenges

A look at the past five years shows that Germany's gross domestic product (GDP) grew by just 0.1 percent in real terms. The production potential is over five percent below expectations from 2019. This stagnation points to both economic and structural problems that are putting Germany behind in international comparison. Despite the decline in energy prices after the energy crisis, they are stabilizing at a higher level than before the corona pandemic.

Although real incomes have recovered from the losses caused by high inflation, consumption remains weak and the savings rate is high. In addition, the competitiveness of German industry compared to its trading partners has declined, with no improvements in sight in the near future.

Investments and modernization needs

In industry, both capacity utilization and labor productivity have declined. A GDP contraction of 0.1 percent is expected in 2024, followed by only marginal growth of 0.4 percent in 2025. Inflation is forecast at 2.2 percent in 2024 and 2.1 percent in 2025, while core inflation is expected to be 3.0 percent (2024) and 2.6 percent (2025). There are significant downside risks: industrial weakness and ongoing uncertainty could further weigh on investment and consumption.

The Council of Experts highlights that Germany has failed to advance modernization in four crucial areas in recent years: Public spending on infrastructure, education and defense is low by international standards. There is also an urgent need to modernize transport infrastructure and take measures to decarbonise freight transport. The digital transformation in the financial system is lagging behind, and the tight housing market in metropolitan areas makes it difficult for workers to move in and causes high rent burdens.

Recommendations for improvement

In order to overcome the challenges, experts recommend setting up a transport infrastructure fund with its own revenue and minimum quotas for defense and education spending. Promoting digital innovation in the financial sector and reducing barriers to housing construction could also be crucial. Freight transport faces challenges from inadequate infrastructure and the urgent need for decarbonization. Measures such as the introduction of a car toll to finance the user financing of the infrastructure are also considered necessary.

Overall, clear priorities must be set in order to get the economy back on a growth path. The Council of Experts advocates reducing bureaucracy and creating user-friendly regulations in order to overcome economic stagnation and achieve long-term success.

The current challenges, described by Euronews and the Economic Advisory Council, require immediate attention and strategic action.