The German financial system, Europe’s largest, shrank for the second consecutive 12 months in 2024, preliminary knowledge from the nation’s statistical workplace confirmed on Wednesday, weeks earlier than an election through which the financial system was the highest situation, highlighting the depth of the downturn gripping Europe’s largest financial system.
Germany’s financial system shrank by 0.2% over the total 12 months – according to economists’ forecasts – and by 0.1% within the remaining quarter, the Federal Statistics Office mentioned on Wednesday, suggesting little signal of an imminent reprieve.
“Cyclical and structural burdens stood in the way of better economic development in 2024,” Ruth Brand, president of the statistics workplace, mentioned at a news convention to current the information.
Increasing competitors from overseas, excessive vitality prices, nonetheless elevated rates of interest and unsure financial prospects all took a toll, Brand mentioned.
Germany’s financial system shrank by 0.3% in 2023. The final time it suffered two consecutive years of contraction was within the early 2000s.
“Germany is going through by far the longest phase of stagnation in post-war history,” mentioned Timo Wollmershaeuser, head of forecasts at Ifo. “It is also falling behind considerably in an international comparison.”
Germany has gone from being Europe’s financial powerhouse to underperforming its main eurozone friends, being the one main financial system anticipated to have contracted final 12 months.
Disagreements over how you can save Europe’s largest financial system have been the principle issue behind the collapse of German Chancellor Olaf Scholz’s fractious three-party coalition final 12 months, and the financial system is the highest concern of German voters.
An export-oriented financial system, Germany is affected by weak international demand and competitors, particularly from China. Exports have been 0.8% decrease in 2024 than the earlier 12 months.
Export alternatives might deteriorate additional after the inauguration of U.S. President-elect Donald Trump, who has threatened sweeping commerce tariffs, LBBW economist Jens-Oliver Niklasch mentioned.
“There are currently very strong indications that 2025 will be the third year of recession in a row,” Niklasch added.
On the brilliant aspect, client spending rose by 0.3% in 2024 in comparison with the earlier 12 months, because of the slowdown in inflation and the rise in wages, with shoppers bettering their buying energy.
The authorities recorded a finances deficit of 113 billion euros ($116.44 billion), a rise of roughly 5.5 billion euros from 2023. The common authorities deficit was 2.6% of gross home product (GDP) in 2024, unchanged from 2023.
Winter blues
Some analysts have been upset by the contraction within the remaining quarter of final 12 months. If first-quarter progress for 2025 can also be unfavorable, the financial system can have fallen again into recession – usually outlined as two consecutive quarters of contraction.
“Hopes of a slight increase in the fourth quarter were disappointed and there is no sign of an improvement in the first quarter,” Commerzbank’s chief economist Joerg Kraemer mentioned.
The estimate for the fourth quarter is preliminary. Revised figures will probably be launched on Jan. 30.
“Given reports on industrial companies pausing production in December due to surging energy prices, the risk of a downward revision of fourth quarter GDP data is real,” mentioned Carsten Brzeski, international head of macro at ING.
The European Central Bank (ECB) is predicted to chop rates of interest three or 4 extra occasions this 12 months, however Kraemer questioned how a lot assist this is able to give German companies till there was a “real restart in economic policy” after the nation’s federal election on Feb. 23.
Germany can solely hope for a tangible financial restoration as soon as there’s readability on the financial, monetary and geopolitical outlook, the financial system ministry mentioned in its month-to-month report on Wednesday, after annual knowledge confirmed a 2024 contraction.
Global manufacturing of business merchandise is modest as is the outlook for German commerce, the report warned.
A slight restoration in actual family incomes and falling rates of interest may enhance consumption and development funding considerably, mentioned Franziska Palmas, senior Europe economist at Capital Economics.
But she mentioned this is able to be principally offset by a continued drag from excessive vitality costs and weak demand for Germany’s key industrial items like automobiles and equipment.
Source: www.dailysabah.com