Germany's government announced that the country's economy, the largest in Europe, is expected to contract for a second consecutive year, posing challenges for the ruling administration as it approaches a crucial election year. The latest forecast predicts a 0.2% decline in gross domestic product for this year, a significant shift from the initial projection of 0.3% growth made in April. This aligns with economists' expectations of a slight downturn, following a 0.3% contraction in 2023.
Looking ahead, the government anticipates a modest recovery with growth rates of 1.1% in the coming year and 1.6% in 2025. Vice Chancellor and Economy Minister highlighted that Germany has struggled to achieve robust growth since 2018, attributing this to both domestic structural issues and broader global challenges.
The official emphasized the need for Germany and Europe to navigate the pressures arising from the dynamics between China and the U.S., urging for a more assertive stance. Efforts have been made to address internal obstacles such as ensuring energy security, streamlining planning processes, reducing bureaucracy, and tackling the shortage of skilled labor.
The German Chamber of Commerce and Industry stressed the urgency of implementing these measures swiftly and called for additional reforms to stimulate investment. The organization's chief executive noted that Germany has experienced consecutive years of recession only once before, in 2002 and 2003, when significant welfare state reforms were introduced.
Expressing concern, he highlighted that the current GDP level is just marginally above the pre-pandemic levels, indicating a prolonged period of economic weakness. The coalition government led by Chancellor Olaf Scholz has faced declining popularity during its tenure, marked by internal conflicts, including disputes over the upcoming budget.
As the center-right opposition gains momentum in the polls ahead of the September national election, the far-right Alternative for Germany party has also made notable gains in recent state and European Parliament elections.
