Economic forecast lowered German government expects economy to shrink

The German economy is not gaining momentum. Now, according to a report, even the German government has to admit: There will be no growth this year.

According to a media report, the German government now also expects the German economy to shrink this year. The economic forecast has been revised downwards significantly, reported the "Süddeutsche Zeitung". Originally, Economics Minister Robert Habeck (Greens) had expected a slight increase in gross domestic product of 0.3 percent for 2024 - now a minus of 0.2 percent is expected. Habeck plans to present the new forecast in Berlin on Wednesday.

The move comes as no surprise, as the major economic research institutes have also recently revised their expectations downwards. They expect a drop of 0.1 percent for this year. The main reason for this is uncertainty among companies and citizens. The persistently high level of interest rates is slowing down investment, companies are cautious due to the volatile economic and geopolitical situation and private households are increasingly putting their income on the high side instead of investing in residential property or consumption.

Experts nevertheless optimistic

The President of the World Economic Forum, Borge Brende, is confident despite the economic downturn. Germany has an industrial base and experience, he told the German Press Agency in Berlin. "This knowledge can easily be transferred from one area of industry to another. It is in the minds of people, organizations and institutions."

Germany is already investing more in semiconductor technologies, cloud and data centers. In addition, the country was once considered the sick man of Europe around 20 years ago and subsequently regained its competitiveness with a series of structural reforms.

Recovery expected for 2025

Both the German government and research institutes expect the situation to gradually improve in the coming year. The economy is then expected to grow again. However, this is dependent on the growth initiative planned by the traffic light government with tax improvements, work incentives and a reduction in bureaucracy taking effect. So far, only a fraction of this has been implemented.

"There is still a great need for action. This government's growth initiative is a first, necessary step," Habeck told the Süddeutsche Zeitung newspaper. "The German economy can grow significantly faster in the next two years if the measures are fully implemented and can take effect. Now is not the time for concerns, now is the time to act quickly." There are fears in the government that the federal states could put the brakes on the measures as they would collect less tax as a result.

Problem of the debt brake?

Brende also warned not to let up on investments. While other countries have hardly any room for maneuver due to high debts, the German budget restrictions are self-imposed in the form of the debt brake. This makes it more difficult to invest money in infrastructure or research and development or to provide start-up and venture capital. "Because there is no doubt that there is more capital available for start-ups in the USA than here in Europe."

Left-wing politician Christian Görke blamed the financial policy of the traffic light government for the problems. Presenting an austerity budget was wrong in this situation. Görke called for an "economic summit in the Chancellor's Office, where the financial policy blinkers are taken off".

dpa