German economy shrinks for second consecutive year

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Germany’s economy is set to shrink for a second year in a row in 2024, signaling the severity of the recession facing Europe’s manufacturing powerhouse.

The Federal Statistics Office said on Wednesday that Europe’s largest economy shrank by 0.2 percent last year, after a 0.3 percent contraction in 2023. Economists had expected a 0.2 percent decline.

“Germany is facing the longest stagnation in its post-war history,” said Timo Olmershauser, an economist at the Munich-based economic think-tank Efor, adding that the country is significantly underperforming in international comparisons.

confirmation that Germany Six weeks before a crucial snap election, the country is suffering from the longest economic crisis in decades.

The campaign has been dominated by the specter of deindustrialisation, crumbling infrastructure and whether the country will abandon a debt brake that curbs public spending.

Friedrich Merz, head of the center-right Christian Democratic Union who is likely to become Germany’s next chancellor, is campaigning on a reform agenda, promising to cut red tape and taxes and dial back welfare benefits for those not working.

While private sector output contracted, government spending rose 2.6 percent over 2023.

Ruth Brandt, president of the Federal Statistics Office, blamed “cyclical and structural pressures” for the weak performance, pointing to “increasing competition for German export industries, high energy costs, an interest rate level that remains high and an uncertain economic outlook”. did ”

Although the economy grew slightly in the first half of the year, it shifted into reverse gear from July. In the three months to December, output fell 0.1 percent from the third quarter.

Robin Winkler, chief economist for Germany at Deutsche Bank, said the contraction in the fourth quarter came as a “surprise” and a “worry”.

“If this is confirmed, the economy will lose more momentum by the end of the year,” he said, adding that it was likely driven by “political uncertainty in Berlin and Washington.”

The Bundesbank said last month that stagnation would continue this year, forecasting growth of just 0.1 percent and warning that a trade war with the United States would trigger another year of economic contraction.

US President-elect Donald Trump has promised to impose a blanket tariff of up to 20 percent on all US imports.

Germany is grappling with a crisis in its automotive industry caused by Chinese competition and a costly shift to electric cars, high energy costs and weak consumer demand.

Output in manufacturing contracted 3 percent, while corporate investment fell 2.8 percent, the statistics office said on Wednesday.

Germany has seen virtually no meaningful economic growth since the start of the pandemic, with industrial production falling more than 10 percent below its peak while unemployment has begun to rise again after falling to record lows.