The economy Germany in recession - economy shrinks in 2024
The German economy slipped back into recession in 2024. Gross domestic product (GDP) fell by 0.2 percent compared to the previous year, according to preliminary data released by the Federal Statistical Office in Wiesbaden.
15.01.2025, 10:42
SDA
This is the second year in a row that the economy has contracted slightly: in 2023, GDP had already fallen by 0.3 percent in price-adjusted terms compared to the previous year.
"Economic and structural burdens stood in the way of better economic development in 2024," said Ruth Brand, head of the authorities in Berlin. "These include increasing competition for the German export industry in important sales markets, high energy costs, persistently high interest rates and an uncertain economic outlook."
Germany is entering the new year with the upcoming Bundestag elections without a tailwind. According to an initial estimate by statisticians, Europe's largest economy is likely to have contracted by 0.1% in the fourth quarter of 2024 compared to the previous quarter, adjusted for price, seasonal and calendar effects. A significant upturn is not in sight. The future course of the economy is playing a major role in the federal election campaign.
Government deficit ratio unchanged
Many economists expect only slight growth in 2025. Last year, the German treasury once again spent more money than it took in. According to preliminary data, the combined deficit of the federal government, federal states, municipalities and social security amounted to 113 billion euros - compared to 107.5 billion in the previous year.
This means that Germany once again complied with the European debt rule. In relation to total economic output, the deficit amounted to 2.6% last year according to preliminary calculations - exactly the same rate as in 2023.
Consumers are holding back on consumption
In 2024, private household consumption, currently the greatest hope for the weakening German economy, did not really gain momentum. Adjusted for price, private consumer spending rose by just 0.3%, while government spending increased significantly.
Many people are saving in the face of significantly higher prices and worries about their jobs - even though real wages have risen and consumers therefore have more money in their pockets. The wave of inflation following the Russian war of aggression against Ukraine has subsided: Last year, the inflation rate in Germany fell to 2.2 percent on average, down from 5.9 percent in 2023.
Weak industry
Last year, the weakness of industry in particular had an impact, with gross value added shrinking significantly by 3.0% compared to the previous year. Important sectors such as mechanical engineering and car manufacturing produced significantly less, while production in the energy-intensive chemical and metal industries remained at a low level. Investments in equipment such as machinery, appliances and vehicles fell sharply by 5.5% compared to the previous year. The construction industry suffered from the crisis in residential construction.
Foreign trade also weakened. Exports of goods and services shrank by 0.8 percent. Among other things, this was due to lower exports of machinery and cars.
Forecasts for 2025 lowered
The outlook for the new year is not very promising. Business associations are hoping that the federal elections on February 23 will bring reforms from a new government that could tackle the weaknesses of the location. However, uncertainty has grown with Donald Trump's election victory in the USA.
If the US president-elect imposes high tariffs on imports from Europe as announced, this would probably hit Germany as an exporting nation particularly hard. Economists fear trade conflicts between the US and the EU, which could respond with countermeasures. However, it is unclear to what extent Trump will implement his plans.
The Bundesbank has already lowered its forecast for the German economy and only expects a mini-growth of 0.2% for 2025. The German Council of Economic Experts ("Wirtschaftsweise") expects growth of 0.4%.
Lots of headwinds for the German economy
The German economy has been suffering from weak growth for years and is under pressure from many sides. China has lost momentum as a growth driver on the global markets, while the number of company bankruptcies is rising in Germany. At the same time, the export outlook for industry is bleak. Key industries such as car manufacturing and chemicals are in crisis, as is residential construction. Consumers are unsettled and are holding on to their money. At the same time, high energy prices and cumbersome bureaucracy are weighing on the location.
