German Economy Expected to Shrink Further in 2024

German Economy Expected to Shrink Further in 2024

Sub : Eco

Sec: National Income

• Economic Contraction Forecast:
  • Germany’s economy is projected to shrink by 0.1% in 2024, according to a joint statement by five leading economic institutes: DIW, Ifo, IfW Kiel, IWH, and RWI. This follows a contraction of 0.3% in 2023.
  • The institutes had previously estimated 0.1% GDP growth for 2024, but the downgrade indicates ongoing economic challenges.
• Stagnation and Slow Recovery:
  • The German economy has been stagnating for over two years, and while a slow recovery is expected in 2025, the country is unlikely to reach its pre-coronavirus growth levels in the near future.
  • For 2025, the institutes forecast 8% growth, down from an earlier estimate of 1.4%, and 1.3% growth for 2026.
• Key Challenges:
  • Germany, traditionally a European economic powerhouse, is grappling with multiple issues:
  • High inflation (although slowing in 2024).
  • An ongoing industrial slowdown.
  • Weak export demand, particularly from China, a key trading partner.
  • The German economy was the only major advanced economy to shrink in 2023.
• Continued Struggles:
  • Despite hopes for a recovery in 2024, economic performance in Q2 of 2024 disappointed, with a 0.1% contraction.
  • According to Geraldine Dany-Knedlik, head of forecasting at DIW, the factors weighing on Germany’s economy will only gradually dissipate.

Germany’s prolonged stagnation and slow recovery are expected to have broader implications for the European Union and its overall economic outlook.

Joint Economic Forecast

The Joint Economic Forecast by leading German research institutions like DIW Berlin, ifo Institute, IfW Kiel, IWH, and RWI provides biannual updates on Germany’s economic outlook. These reports analyze the country’s GDP growth, inflation, labor market trends, and external trade factors. The goal is to offer a comprehensive analysis that guides economic policymakers and stakeholders in decision-making.

The Joint Economic Forecast highlights potential risks and economic opportunities, influencing the fiscal policies of the government while being used by businesses for strategic planning.