The OECD has recently revised its economic forecast for Germany, signaling a period of stagnation and slow growth. The German economy, Europe's largest, is expected to stagnate in 2024, followed by modest growth of 0.7% in 2025 and 1.2% in 2026. This downward adjustment underscores Germany's position as the slowest-growing among developed nations, with its projected growth falling behind other eurozone countries.
Several factors contribute to this bleak outlook. Weak foreign demand, particularly from China, has severely affected Germany's export-driven economy. The competitive pressure from Chinese products has further strained Germany's industrial sector, especially the automotive industry. Additionally, restrictive fiscal policies, including the reinstatement of the debt brake, have limited public spending and contributed to economic sluggishness.
The OECD has also highlighted the uncertainty surrounding Germany's transition to a greener economy, which has deterred investment and created a challenging business environment. The lack of a clear fiscal plan for 2025, following the collapse of the coalition government, adds to the uncertainty for businesses and households.
Despite these challenges, the OECD suggests potential solutions to bolster growth. These include increasing fiscal flexibility to support structural investments, particularly in digitalization and infrastructure. Reforming the debt brake and eliminating environmentally harmful tax subsidies could provide the financial leeway required for such investments.
Globally, the OECD projects a stable economic growth rate of 3.3% for both 2025 and 2026. However, Germany's economic performance remains a critical concern, necessitating strategic reforms to revitalize growth and stability in the coming years.
