May 8 2024: According to forecasts from the German economic institute IW, Germany’s economy is anticipated to stagnate in 2024, despite a stronger-than-expected performance at the beginning of the year. The country is expected to continue trailing behind its European counterparts.
IW’s latest projections, reported by Reuters ahead of their official release, highlight ongoing challenges in sectors like manufacturing and construction, which remain mired in recession. The only bright spot is expected to be consumer spending, which is set to improve as inflation eases.
However, IW economist Michael Groemling cautioned that increased consumption alone is insufficient for a substantial economic upswing. He emphasized the need for a boost in investments, noting significant gaps that have emerged in this area.
Investment activities are hampered by geopolitical tensions and elevated interest rates, which increase financing costs, adding to the economic challenges.
Germany faced a contraction of 0.2% in its economy last year, the weakest performance among major euro zone economies. Factors such as high energy prices, sluggish global demand, and record-high interest rates contributed to this decline.
For 2024, IW projects zero growth for Germany, lagging behind other economies like France, Italy, the UK, and the US, which are all expected to expand.
While Germany managed to avoid a recession at the beginning of the year, posting 0.2% growth in the first quarter, challenges persist. The government’s forecast of 0.3% GDP growth for the year may be challenging to achieve without significant policy interventions.
Groemling emphasized the need for policies that enhance business conditions, warning that without changes, Germany risks underutilizing its economic potential.
IW’s estimates suggest that weak foreign trade will offer limited economic stimulus. Additionally, Germany’s unemployment rate is expected to rise to 6% on average in 2024, up from 5.7% in 2023, reflecting the impact of economic weakness on the labor market.