Germany's economy on the brink: stagnation and recession are looming!

Germany's economy on the brink: stagnation and recession are looming!

On Wednesday, the Federal Statistical Office will publish data on gross domestic product (GDP) and the national deficit for 2024. The German economy has been showing stagnating tendencies for a long time. After slight growth in the first quarter of 2023, GDP fell in the second quarter, only to increase minimally in the third quarter. For 2024, the federal government forecasts a 0.2 percent decline in GDP, which would mark the second consecutive year of recession after a 0.3 percent decline in 2023, as Fashion United reported.

The situation in the German economy remains tense, with pressure from the loss of growth momentum from China and an increase in company bankruptcies at home. In addition, gloomy export prospects for industry and crises in key industries such as automobile manufacturing, chemicals and housing are weighing on economic stability. Consumers are feeling uncertain, which is inhibiting private consumption, while high energy prices and bureaucracy are putting a strain on the location. The prospects for 2024 are not very optimistic, although reforms are hoped for after the federal election. Experts warn that possible high tariffs on imports from Europe under US President-elect Donald Trump could have a severe impact on Germany as an export nation.

Federal government adjusts forecasts

The federal government has revised its economic forecast downwards, confirmed daily news. Federal Minister of Economics Robert Habeck highlights the lack of willingness to innovate as the biggest problem. A growth package from the traffic light government is intended to help with tax relief, work incentives and electricity price reductions. Habeck is calling for the growth initiative to be fully implemented; additional measures such as reducing network fees and reducing bureaucracy have been suggested.

Economic growth of 1.1 percent is expected for 2025, with hopes of an increase in private consumption and more industrial exports. Habeck is also in favor of reforming the debt brake in order to promote investment incentives. In the midst of the discussion, economist Achim Truger recommended suspending the debt brake due to the “dramatic” economic situation. However, this met with resistance from the FDP, which instead called for a change of course in economic policy. There is also economic criticism of Habeck: The Association of Family Businesses is calling for a reduction in corporate taxes as well as reforms in energy policy and social security, while association President Marie-Christine Ostermann describes the economic decline as homemade and points to rising additional wage costs.