Germany’s economy is expected to contract again in 2024, the economy minister was quoted as saying by Reuters

By Maria Martinez

BERLIN (Reuters) – Germany’s economy is expected to contract by 0.2 percent in 2024, the economy ministry said on Wednesday, becoming the only member of the Group of Seven (G7) major industrial democracies to see output fall this year , as is the case in 2023.

The government is cutting its forecast from an earlier forecast of 0.3 percent growth for this year as the expected recovery in the second half of the year failed to materialize.

Germany’s economy was already the weakest among its large peers in the euro zone and other G7 countries last year, with gross domestic product down 0.3 percent.

If economic output contracts for a second straight year, which last happened in 2002-2003, when export and manufacturing industries struggled, Germany would be the only G7 economy in contraction, according to the International Monetary Fund’s latest forecasts.

Germany’s economy contracted in the second quarter, raising fears of a possible recession, which is defined as two consecutive quarters of contraction.

Early indicators such as industrial production and the business climate suggest the economic downturn continued in the second half of the year, the ministry said.

The economy has not grown strongly since 2018 because of its structural problems and geopolitical challenges, German Economy Minister Robert Habeck said in his forecast presentation.

To counter cyclical and structural challenges, the German government agreed on a growth package of 49 measures to stimulate the economy.

“If they are implemented, the economy will be stronger and more people will go back to work,” Habeck said.

The plans must be approved by both houses of parliament later this year. This means the coalition government needs votes from the opposition conservatives in the upper house Bundesrat, which represents Germany’s 16 federal states.

BACK TO GROWTH IN 2025

By the beginning of the year, growth momentum should gradually return, the ministry said, expecting growth of 1.1 percent for 2025, up from 1.0 percent previously.

Growth is expected to pick up again in 2025, mainly due to an increase in private consumption as a result of higher wage settlements, lower inflation and tax breaks, the ministry said. Lower interest rates should also boost consumption, it said.

For the first time, the government included a forecast for 2026, when Germany’s economy is seen growing by 1.6 percent.

Inflation is expected to fall further, slowing to 2.2% in 2024 from 5.9% last year, then to 2.0% in 2025 and 1.9% in 2026.