Germany downgrades 2024 economic forecast, anticipates continued contraction

The German government has revised its 2024 economic forecast, projecting a contraction for Europe’s largest economy for the second consecutive year before a recovery begins in 2025.

Output is expected to shrink by 0.2 percent in 2024, the economy ministry said in a statement, a sharp downgrade from the 0.3-percent expansion previously forecast, News.Az reports, citing foreign media.

Germany's economy stalled in the first half of the year and a slew of disappointing indicators recently suggest "the economic weakness will persist into the second half of the year", it said.

Germany was already the only major advanced economy to fall into recession last year when it contracted by 0.3 percent, acting as a drag on the wider eurozone.

Stubbornly weak domestic and foreign demand, high interest rates and costly energy in the wake of Russia's war in Ukraine have all weighed heavily on the German economy -- particularly its crucial manufacturing sector.

At the same time, the country faces structural challenges including an ageing population, increased competition from China, burdensome bureaucracy and a complex green transition.

"Germany's structural problems are now taking their toll," Economy Minister Robert Habeck said.

"And this is happening amid major geo-economic challenges. Germany and Europe are caught in the middle of crises between China and the United States and must learn to assert themselves," he added.

Germany's woes were highlighted by a spate of bad news from the country's carmakers recently, as the flagship industry struggles with rising production costs and fierce competition from Chinese manufacturers on electric vehicles.

Volkswagen, Europe's biggest auto manufacturer, last month cut its annual outlook and said it would for the first time have to consider closing factories in Germany.

Rivals BMW and Mercedes-Benz have also lowered their outlook, citing falling Chinese demand.

The economy ministry nevertheless expressed confidence that a rebound was just around the corner.

Higher wages, easing inflation and lower interest rates are expected to encourage domestic consumption next year, the ministry said, while an improved global outlook should boost exports and industrial investments.

The economy is expected to grow by 1.1 percent in 2025, according to the latest forecasts, up from a previous estimate of one percent.

In 2026, output is predicted to expand by 1.6 percent.

News.Az