According to a recent report by the German economic institute IW, Germany’s economy is expected to stagnate in 2024 and fall even further behind its European peers, despite a stronger start to the year. The manufacturing and construction sectors are particularly affected, remaining in recession. Despite an increase in consumption as inflation eases, this may not be enough for a true economic upswing. Investments are hindered by geopolitical tensions and high interest rates, which make financing more expensive.
In 2023, Germany experienced a 0.2% contraction, the weakest performance among major euro zone economies. The IW predicts zero growth for Germany in 2024, with other countries like France, Italy, Britain, and the United States expected to expand. Although Germany saw growth of 0.2% in the first quarter of 2024, the previous quarter had seen a 0.5% shrink.
Foreign trade is not expected to provide much economic stimulus, and the unemployment rate in Germany is projected to increase to 6% on average for the year. Despite having an average of 46 million employed people in 2024, the effects of economic weakness are becoming more evident on the labor market. There is a need for policy measures to improve business conditions and unleash the full potential of the German economy.