By Maria Martinez
BERLIN (Reuters) -Germany’s economy contracted for the second consecutive year in 2024, highlighting the depth of the downturn gripping Europe’s biggest economy.
Germany’s economy shrank by 0.2% over the full year – in line with economists’ forecasts – and by 0.1% in the final quarter, the Federal Statistics Office said on Wednesday, suggesting little sign of an imminent reprieve.
“Cyclical and structural burdens stood in the way of better economic development in 2024,” Ruth Brand, president of the statistics office, said at a press conference to present the data.
Increasing competition from abroad, high energy costs, still elevated interest rates and uncertain economic prospects all took a toll, Brand said.
Germany’s economy shrank by 0.3% in 2023. The last time it suffered two consecutive years of contraction was in the early 2000s.
“Germany is going through by far the longest phase of stagnation in post-war history,” said Timo Wollmershaeuser, head of forecasts at Ifo. “It is also falling behind considerably in an international comparison.”
Germany has gone from being Europe’s economic powerhouse to underperforming its major euro zone peers, being the only major economy expected to have contracted last year.
Disagreements over how to save Europe’s largest economy had been the main factor behind the collapse of German Chancellor Olaf Scholz’s fractious three-party coalition last year, and the economy is the top concern of German voters.
An export oriented economy, Germany is suffering from weak global demand and competition, especially from China. Exports were 0.8% lower in 2024 than the previous year.
Export opportunities could deteriorate further after the inauguration of U.S. President-elect Donald Trump, who has threatened sweeping trade tariffs, LBBW economist Jens-Oliver Niklasch said.
“There are currently very strong indications that 2025 will be the third year of recession in a row,” Niklasch added.
On the bright side, consumer spending rose by 0.3% in 2024 compared to the previous year thanks to the slowdown in inflation and the rise in wages, with consumers improving their purchasing power.
The government recorded a budget deficit of 113 billion euros ($116.44 billion), an increase of roughly 5.5 billion euros from 2023. The general government deficit was at 2.6% of GDP in 2024, unchanged from 2023.
WINTER BLUES
Some analysts were disappointed by the contraction in the final quarter of last year. If first quarter growth for 2025 is also negative, the economy will have fallen back into recession – normally defined as two consecutive quarters in contraction.
“Hopes of a slight increase in the fourth quarter were disappointed and there is no sign of an improvement in the first quarter,” Commerzbank’s chief economist Joerg Kraemer said.
The estimate for the fourth quarter is preliminary. Revised figures will be released on Jan. 30.
“Given reports on industrial companies pausing production in December due to surging energy prices, the risk of a downward revision of fourth quarter GDP data is real,” said Carsten Brzeski, global head of macro at ING.
The European Central Bank is expected to cut interest rates three or four more times this year, but Kraemer questioned how much help this would give German businesses until there was a “real restart in economic policy” after the country’s federal election on February 23.
Germany can only hope for a tangible economic recovery once there is clarity on the economic, financial and geopolitical outlook, the economy ministry said in its monthly report on Wednesday, after annual data showed a 2024 contraction.
Global production of industrial products is modest as is the outlook for German trade, the report warned.
A slight recovery in real household incomes and falling interest rates might boost consumption and construction investment somewhat, said Franziska Palmas, senior Europe economist at Capital Economics.
But she said this would be mostly offset by a continued drag from high energy prices and weak demand for Germany’s key industrial goods like cars and machinery.
(Reporting by Maria Martinez, Writing by Miranda Murray, Editing by Christina Fincher and Angus MacSwan)
