Germany’s economy is expected to shrink by 0.2% in 2024, marking a second consecutive year of contraction, according to revised government forecasts. The economy ministry had previously anticipated 0.3% growth but downgraded its outlook due to weak domestic demand and industrial slowdown, exacerbated by high energy prices following Russia’s invasion of Ukraine.
Hopes for a consumption-driven recovery have diminished as inflation remains high and demand both domestically and internationally remains sluggish. Germany, the only major economy to contract in 2023, faces additional challenges, including competition from China, a skilled labor shortage, and the complexities of a green transition.
Despite the short-term challenges, the German government remains optimistic for 2025, forecasting a 1.1% growth, with further expansion of 1.6% expected by 2026. Economy Minister Robert Habeck’s proposed “growth initiative” includes tax relief, permanently reduced energy prices for industry, and measures to attract skilled foreign workers. Habeck believes that if fully implemented, these measures could significantly boost the economy over the next two years.
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