On Wednesday, a group of leading economic think tanks released their six-monthly report on the German economy for early 2024. Titled “Germany’s Economic Sluggishness: A Complex Challenge,” the report predicted that growth forecasts for 2024 would be down from 1.2% to near-stagnation, at just 0.1% for the year. The report emphasized that both economic and structural factors were contributing to Germany’s current struggles with growth forces dwindling and a phase of economic weakness persisting.
The summary of the report stated that while there is hope for slight growth as consumers regain purchasing power and reforms are implemented to address economic weaknesses, overall, the dynamic will not be “all that great.” Consumers and their recovering purchasing power, as inflation sinks and wages rise in many sectors, will be crucial for the economic recovery.
The German government, in collaboration with leading economic institutes including the DIW in Berlin, the IfW in Kiel, the IWH in Halle, the RWI in Essen, and Ifo in Munich also revised its economic forecasts downwards. There is a warning of the likelihood of entering a technical recession by the end of the first quarter of 2024 due to a 0.3% year-on-year contraction in German GDP in the last quarter of 2023.
One contributing factor to recent months’ economic challenges has been frequent strikes impacting Germany’s rail network and air travel. These strikes have led to canceled flights and trains with knock-on effects for other sectors. However, a major labor dispute between national rail operator Deutsche Bahn and GDL train drivers’ union was resolved earlier this week with a breakthrough deal after months of negotiations.
Overall, despite facing significant challenges with growth forces dwindling and a phase of economic weakness persisting, there is hope for slight growth as consumers regain purchasing power and reforms are implemented to address economic weaknesses.
