The German economy is predicted to shrink this year as well: Bad news for Finland

Germany’s the economy will shrink by 0.2 percent this year, the country’s Ministry of Economy estimated on Wednesday. The change in the forecast is big, because previously the ministry estimated that the economy would grow by 0.3 percent this year.

If the forecast is correct, the gross domestic product of Europe’s largest national economy will shrink for two consecutive years.

German industry has been suffering from more expensive energy for a long time. In addition, the car industry is in trouble because German manufacturers have had a poor performance in the electric car market.

“This is bad news for the Finnish economy, especially because the state of German industry is bad. A lot of investment products are exported from Finland to the euro area and Germany,” says the head of the Bank of Finland’s monetary policy and euro area economic office. Markku Lehmus.

The ministry predicts that the German economy will grow by 1.1 percent next year and 1.6 percent in 2026.

Minister of Finance Robert Habeck emphasized on Wednesday, according to the news agency Bloomberg, the urgent need for structural reforms of the economy.

According to him, economic activity is burdened by the uncertainty of the energy market, excessive bureaucracy and a shortage of skilled labor. In addition, geopolitical uncertainty is holding back the economy.

“In the midst of crises, Germany and Europe are sandwiched between China and the United States, and we have to learn to defend ourselves,” Habeck said, according to Bloomberg.

German are Finland’s most important trading partners. When the economy shrinks in Germany, it tends to slow down the recovery in Finland.

“From the point of view of Finnish exports, the contraction of the German economy this year is also bad news, because export demand is unlikely to increase, at least in Germany. The German economy, as well as the Finnish economy, would need a lighter monetary policy, which would support new investments”, says the Forecasting Manager of the research institute Labore Juho Koistinen.