German economy will almost "stand still"

Germany is still struggling with a “triple whammy” of high inflation, high interest rates and weak exports that caused Europe’s largest economy to shrink by 0.3% last year.

The German economy is expected to struggle to grow this year, leading economic institutes said on March 27, with weak demand at home and abroad slowing the path to recovery.

The continent’s No. 1 economy will grow by just 0.1% in 2024, five consulting firms said in a joint statement. The latest forecasts show the German economy will barely budge, a sharp decline from the same firms’ previous forecast of 1.3% growth.

“Cyclical and structural factors are overlapping in the overall sluggish economic growth,” said Stefan Kooths, an expert at the Kiel Institute for the World Economy (IfW Kiel). “Although a recovery may start in the spring, the overall momentum will not be very strong,” he added.

Germany's economy shrank 0.3% last year due to inflation, high interest rates and falling exports, and is struggling to escape the doldrums.

The think tanks, DIW, Ifo, IfW Kiel, IWH and RWI, said that although inflation in the eurozone's No. 1 economy has fallen steadily in recent months, consumer spending is still rising "later and less dynamically" than previously forecast due to stagnant wage growth.

And Germany's export sector, usually a key driver of economic growth, is suffering from cooling foreign trade amid a fragile global economy.

World - German economy will almost — Customers shop in a supermarket in Berlin, Germany. Photo: DW

Energy-intensive businesses in particular have been hit hard by soaring energy prices following Russia's war in Ukraine, contributing to a slump in production in the European industrial powerhouse.

Meanwhile, business investment has been dampened by rising European Central Bank (ECB) interest rates, making borrowing more expensive, and “economic policy uncertainty,” the five think tanks said.

The German government also recently sharply downgraded its economic forecast, expecting output to grow by just 0.2% this year. German Economy Minister Robert Habeck acknowledged last month that the economy was in dire straits and needed further reforms.

But the three-party coalition government – made up of Chancellor Olaf Scholz's SPD, Habeck's Greens and Finance Minister Christian Lindner's FDP – is divided over how to turn things around.

There are growing calls for the government to relax its constitutional “debt brake”, a self-imposed cap on annual borrowing, to boost spending on much-needed infrastructure modernization and the country’s green transition. Mr Habeck supports loosening the debt rules, but Mr Lindner is vehemently opposed.

The think tanks also proposed a “mild reform” of the “debt brake” to allow “more debt-financed investment than before”.

Looking ahead, the consultancy predicts a recovery to accelerate next year as inflation eases and demand picks up, with the German economy expected to grow by 1.4% in 2025, just below its previous forecast of 1.5% .

Minh Duc (According to AFP/France24, TRT World)

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