German economy showing signs of recovery, experts say

FRANKFURT, Germany — The German economy is likely to pick up this year after a period of weakness but still faces significant headwinds, a group of influential experts said Wednesday.

The assessment from the government’s council of economic advisors chimes with other recent forecasts that predict Europe’s top economy is slowly getting back on its feet.

Last year output shrank slightly due to soaring inflation, a slowdown in the crucial manufacturing sector, and poor demand from key trading partners, particularly China.

Despite continued challenges, the experts expect “the German economy to gain some momentum over the course of 2024,” said council member Martin Werding in the group’s latest report.

READ: German industrial output falls but less than feared

Growing overseas shipments, boosted by recovering international trade, as well as improving consumer demand on the back of rising salaries will drive the recovery, they said.

Nevertheless, the experts expect only a modest, 0.2-percent rise in gross domestic product (GDP) this year before an increase of 0.9 percent in 2025.

This is largely in line with other recent forecasts, with the government predicting 0.3 percent growth in 2024.

Economic indicators, from factory output to surveys of business sentiment, have mostly been rising in recent months.

But German economic expansion will be sluggish compared to the wider 20-nation eurozone, which the EU predicts will expand 0.8 percent in 2024.

READ: German economy contracted 0.3% in 2023 – stats office

Germany’s “export-orientated companies are facing fierce competition, rising labor costs, and continued increases in energy prices,” said council member Veronika Grimm.

Eurozone interest rates

While the experts expect the European Central Bank to lower eurozone interest rates in the summer, following a fierce hiking cycle, the positive effects are unlikely to be felt until next year.

READ: ECB seen holding interest rates one last time

High levels of uncertainty surrounding future economic policy are also a concern, the experts warned.

The draft 2025 budget is being fiercely debated in Chancellor Olaf Scholz’s three-party ruling coalition, with reports saying there are sharp disagreements over potential cuts.

This uncertainty comes at a time that massive new investments are needed to overhaul the country’s aging infrastructure and drive the transition to a greener economy, according to observers.