In 2024, Germany's economy experienced a downturn, slipping into recession with a GDP contraction of 0.2%. This marked the second consecutive year of economic shrinkage. High energy costs and export challenges were significant factors impeding growth. Despite an easing inflation rate and increased real wages, consumer spending failed to accelerate. The industrial sector struggled, especially in machinery and automotive industries, and investment in equipment dropped significantly.
The construction sector also faced a crisis, with fewer housing projects initiated due to high costs and interest rates. Conversely, the service sector showed some resilience, experiencing modest growth. Germany's exports weakened while imports saw a slight increase, further exacerbating economic woes.
Political uncertainties added to the economic challenges. The election of Donald Trump in the USA heightened concerns over potential trade conflicts, while internal political instability following the collapse of Chancellor Olaf Scholz's coalition government created additional uncertainty. The upcoming German elections in 2025 are seen as pivotal for economic reforms, with business associations hopeful for initiatives that could bolster investment and competitiveness.
Germany's economic outlook remains cautious, with structural burdens and geopolitical risks casting a shadow over potential recovery. The Bundesbank's forecast suggests minimal growth in 2025, highlighting the need for decisive action to address the chronic issues plaguing the nation's economy. Without significant reforms, Germany risks continuing its path as "the sick man of Europe," in stark contrast to the economic progress seen in Southern European countries.
