The German economy has slipped into recession again in 2024. The gross domestic product (GDP) fell by 0.2 percent compared to the previous year, as the Federal Statistical Office announced based on preliminary data in Wiesbaden. This means that the economy is shrinking slightly for the second year in a row: in 2023, the gross domestic product, adjusted for prices, had already declined by 0.3 percent compared to the previous year.
“Economic and structural burdens stood in the way of better economic development in 2024,” said head of the authorities Ruth Brand in Berlin. “These include increasing competition for the German export industry in important sales markets, high energy costs, still-high interest rates, but also uncertain economic prospects.”
Germany is heading into the new year with the upcoming federal election without any tailwind. According to an initial estimate by statisticians, in the fourth quarter of 2024, Europe’s largest economy will probably have shrunk by 0.1 percent compared to the previous quarter, adjusted for prices, seasons and calendar. A significant upswing is not in sight. The future economic course plays a major role in the federal election campaign.
Government deficit ratio unchanged
Many economists expect only slight growth in 2025. Last year, the German tax authorities once again spent more money than they took in. According to preliminary data, the combined deficit of the federal, state, local and social security systems amounted to 113 billion euros – after 107.5 billion in the previous year.
This means that Germany once again complied with the European debt rules. Based on overall economic output, according to preliminary calculations, the deficit was 2.6 percent last year – exactly the rate from 2023.
Consumers are holding back when it comes to consumption
In 2024, private household consumption, currently the best hope for the weakening German economy, did not really gain momentum. Private consumer spending rose by just 0.3 percent after adjusting for prices, while government spending increased significantly.
Many people are saving in the face of significantly higher prices and worries about their jobs – even though real wages have risen and consumers have more money in their pockets. The wave of inflation following Russia’s war of aggression on Ukraine has subsided: Last year, the inflation rate in Germany fell to an average of 2.2 percent, after 5.9 percent in 2023.
Weak industry
Last year, the weakness of industry had a particular impact, with gross value added shrinking significantly by 3.0 percent compared to the previous year.
Foreign trade also weakened. Exports of goods and services fell by 0.8 percent. The reason was, among other things, lower exports of machinery and cars.
Forecasts for 2025 lowered
The prospects for the new year are not very promising. With the federal elections on February 23rd, business associations are hoping for reforms from a new federal government that could tackle the location’s weaknesses. But with Donald Trump’s election victory in the USA, uncertainty has grown.
If the US President-elect were to impose high tariffs on imports from Europe, as announced, this would probably hit Germany as an export nation particularly hard. Economists fear trade conflicts between the USA and the EU, which could respond with countermeasures. However, it is unclear to what extent Trump will implement his plans.
The Bundesbank has already lowered its forecast for the German economy and only expects mini-growth of 0.2 percent for 2025. The Council of Experts (“Economy”) expects an increase of 0.4 percent.
A lot of headwind for the German economy
The German economy has been suffering from weak growth for years and is under pressure from many sides. China has lost momentum as a growth driver on global markets, and the number of company bankruptcies is increasing domestically. At the same time, the export prospects for the industry are bleak. Key industries such as car manufacturing and chemicals are in crisis, as is housing construction. Consumers are unsure and are holding on to their money. At the same time, high energy prices and cumbersome bureaucracy are putting a strain on the location. (dpa)