Germany's economy shrank for second consecutive year in 2024

Germany’s economy shrank for second consecutive year in 2024

/ 12:58 PM January 16, 2025

Germany's economy shrank for the second consecutive year in 2024

Trucks and cars move along on a highway in Frankfurt, Germany, Wednesday, Jan. 15, 2025. (AP Photo/Michael Probst)

BERLIN — Germany’s economy shrank for the second straight year in 2024 as worried consumers held back on spending and Chinese competition ate into the country’s traditional exports of cars and industrial machinery.

The year’s weak performance underlines Germany’s status as Europe’s worst performing major economy and shows the country as having no meaningful growth in the past four years as it has struggled to deal with major shifts in the global economy.

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Gross domestic product contracted by 0.2% last year, following a 0.3% decline in 2023, according to preliminary official figures released Wednesday, weeks before an election in which the economy is the top issue.

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The economy is now only 0.3% bigger than it was in 2019, the year before the COVID-19 pandemic.

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German business has been battered by external shocks and homegrown problems, unleashing an angst-ridden national debate over how to remedy the situation. Chancellor Olaf Scholz’s three-party coalition government collapsed in November when Scholz fired his finance minister in a dispute over how to revitalize the economy. That paved the way for an early election on Feb. 23.

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Contenders to lead the next government have made contrasting proposals on how to inject new vigor into the economy.

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Ruth Brand, the head of the statistics office, ticked off the list of short- and long-term challenges: higher energy prices after the loss of cheap natural gas from Russia; high interest rates from the European Central Bank that deter investment in new machinery and vehicles; and consumers worried about the future who are saving their wages instead of spending them.

Spending on hotels and restaurants sagged by 4.4% and outlays for clothing and shoes fell by 2.8% despite rising disposable income.

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On top of that comes increasing competition for export markets from China in traditional areas of German strength such as cars, industrial machinery and chemicals.

Other, more chronic issues include excessive bureaucracy and a shortage of skilled labor.

“German exports saw themselves exposed to stronger international competition, not least from the People’s Republic of China,” Brand said. “German exports shrank although world trade increased in 2024.”

“The German economy is mired in stagnation,” said Nils Jannsen of the Kiel Institute for the World Economy. And prospects for growth in the coming year are “gloomy,” he said, with the “sword of Damocles” hanging over the export-oriented economy from possible new U.S. trade measures such as higher tariffs on imported goods from the incoming administration of President-elect Donald Trump, who takes office on Monday.

Despite the weak growth figures, the jobs market remains strong and disposable income is rising along with pay raises from new wage agreements aimed at making up for inflation.

But a willingness to spend is being held back by worries fed by a range of factors, including a drumbeat of job cut announcements at major companies including Volkswagen, steelmaker and industrial conglomerate Thyssenkrupp and auto technology supplier Bosch, and by the war in Ukraine.

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Brand said that the economy is believed to have shrunk by 0.1% in the fourth quarter compared with the previous three-month period. That, however, is a rough initial estimate because hard economic data for December haven’t yet been released.

TAGS: economy, Germany

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