Germany’s looming general election will be fought against the backdrop of a stagnating economy, the European Commission has forecast, with GDP expected to have contracted in 2024.
The commission’s quarterly forecast suggested Germany, traditionally the engine of the bloc’s economy, will be its weakest performer in 2025, notching up growth of just 0.7% after shrinking by 0.1% this year.
France is expected to do little better, with growth of 0.8% pencilled in for next year – a slowdown from 1.1% this year, according to the forecast, released on Friday. The EU economy as a whole is expected to achieve what the commission called “modest growth,” of 0.9% this year, and 1.5% in 2025.
The European Central Bank (ECB) has cut interest rates three times in recent months, as the rise in inflation that followed Russia’s invasion of Ukraine and the aftermath of the Covid pandemic faded.
The commission’s vice-president, Valdis Dombrovskis, said “with the EU economy steadily recovering, growth should pick up more speed next year with rising consumption, thanks to increased purchasing power and still record-low unemployment, and an expected improvement in investment levels”.
He added: “Still, given today’s high geopolitical uncertainty and many risks, we cannot afford to be complacent.”
The 27-member club is braced for a fresh economic headache, as Donald Trump prepares to arrive in the White House, threatening to slap tariffs – import taxes – on all foreign goods. The EU will have to decide whether to seek exemptions for some products, and whether to retaliate with tit-for-tat tariffs of its own, if Trump goes ahead.
Germany will have a lame duck government as Trump comes to power, with elections taking place on 23 February, after the German chancellor, Olaf Scholz, sacked his finance minister, Christian Lindner, in effect collapsing the three-way governing coalition. The faltering German economy was at the heart of the clashes between the pair, with Lindner unwilling to countenance additional public investment.
In a powerful symbol of the country’s economic woes, the German carmaker Volkswagen, which has struggled to compete with cut-price electric vehicles, is considering shutting at least three plants, potentially putting tens of thousands jobs at risk in the coming months.
The former ECB governor Mario Draghi recently called for a massive increase in investment across the EU, and closer coordination of regulation, to help EU industries to compete on the global market.
