Germany Slashes 2024 Forecast As Economy Navigates ‘Troubled Waters’

February 20, 2024

Germany recently overtook Japan as the world’s third-largest economy, but that should be taken more as a sign of Japan’s economic stumbles than Germany’s prowess, as the nation drastically slashed its economic projections and may already be in a recession.

Germany’s Economy Minister Robert Habeck announced that the government’s forecast for economic growth in 2024 had been revised down to 0.2% from 1.3%. Projections for growth in 2025 are also anemic, with the government forecasting growth of just 1% next year.

The minister warned that the German economy was in “troubled waters,” highlighting the toll that Russia’s invasion of Ukraine and subsequent sanctions from the West have taken on Germany’s energy-intensive industries, which are heavily dependent on Russian gas.

Beyond that, however, Germany faces several structural challenges that may make it difficult for the economy to find its footing. The nation’s reliance on exports has made it particularly vulnerable to changes in global trade patterns, and a shortage of workers has exacerbated inflation.

Germany’s central bank, Bundesbank, is warning that the country may have already entered a recession. The German economy contracted by 0.3% in the fourth quarter of last year, and Bundesbank is predicting another contraction in the first quarter of 2024. That would mean two consecutive quarters of economic contraction, which is the broadly understood definition of a recession.

The nation’s homebuilding and construction sectors are in a sustained downturn. Homebuilders’ assessment of both the current business sentiment and outlook for the residential construction industry both fell to all-time lows in January, according to data from the Ifo Institute for Economic Research. PMI’s construction survey also fell to the lowest level on record in Janaury, beating the previous record set in December.

There have been promising signs that point to a gradual recovery in the coming year. Inflation is falling and energy costs have come down substantially from the immediate aftermath of Russia’s invasion, unemployment remains low and after years of stagnation, wages are beginning to rise. 


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