The German government expects the economy to recover slightly and gain momentum thanks to lower inflation, monetary easing and growth in the global economy, from which Germany’s export-oriented economy greatly benefits. The German Ministry of Economy thus slightly raised its economic growth forecasts for the current year from 0.2% to 0.3%. Meanwhile, for 2025 it expects growth of 1%, as indicated in its traditional spring forecast presented today in Berlin by the Minister of Economy, Robert Habeck, who in February lamented the “dramatically bad” situation of the German economy.
“We see signs of a slight economic rebound and that the economy is slowly emerging from its phase of weakness,” he explained at the presentation press conference. “The figure reflects the fact that signs of improvement have increased significantly in recent weeks,” she said.
Despite this improvement, the Greens politician pointed out that “it is no reason not to continue working hard on Germany’s competitiveness” and acknowledged that “it is not something to be satisfied with” since Germany has fallen behind in terms of of international competitiveness and still faces major structural challenges such as overcoming reluctance to invest or the worrying lack of qualified labor. In his opinion, for years, the country has “allowed itself a certain sloppiness” in economic policy. “We have much to do. We must not give up on this effort,” he declared.
Habeck sees the German economy as at a “turning point” this spring, after largely stagnating over the past two years, in part due to high energy prices as a result of the Ukraine war.
Now, the situation is improving and electricity and gas prices, at least on the stock market, have returned more or less to the same level as before the crisis. “Prices have fallen faster than many expected,” he explained about a factor that plays an important role in the German economy, since on the one hand it stimulates private consumption by households that increase their purchasing power by having to spend less money to electricity and on the other, the situation of German industry, a large consumer of energy, is also improved.
“Lower inflation means there is more money available. People have more money in their wallets again and this money can be consumed,” Habeck said. For the current year, his ministry forecasts underlying inflation of 2.8%, very far from the 6.9% of the crisis year 2022. The forecast for next year is 1.9%, below the stability objective of prices set by the European Central Bank.
These figures are also in line with the business climate index of the German economic institute Ifo, which is published monthly and is considered the most reliable indicator of the current economic situation. In April the index rose again for the third consecutive month. “Things are slowly improving,” declared its president Clemens Fuest.
Pessimism in the industry
But despite this slight improvement in the economy, German industry remains pessimistic about the current year and foresees a further decline in production. “Germany is likely to fall further behind in 2024,” said Siegfried Russwurm, president of the Federation of German Industry (BDI), this week at the start of the Hannover Fair, the largest in the sector worldwide. “We expect industrial production to fall 1.5% compared to the previous year,” he said.
Meanwhile, the German Chamber of Commerce and Industry (DIHK) does not see things much better and demands an urgent improvement in the economic framework conditions in Germany. “It would be desirable for the economy to gain momentum, but unfortunately companies continue to struggle with tangible structural challenges, in particular high energy, staff and financing costs,” said managing director Martin Wansleben. In addition, Germany is also losing ground in international comparison, among other things due to high tax pressure and enormous bureaucracy. “Against this backdrop, it is increasingly clear that 2024 will also be a difficult year for the German economy,” Wansleben noted.
The International Monetary Fund (IMF), for its part, recently revised downwards its latest growth forecast for Europe’s largest economy from 0.5% to 0.2% for the current year, which represents the weakest growth of all G7 Western industrialized countries.