German economy to shrink 0.5% in 2024: IW

Berlin, Dec 14 –  Following an expected recession of 0.5 per cent this year, Germany’s gross domestic product (GDP) is now forecast to fall by as much in 2024, the German Economic Institute (IW) said on Wednesday.

“For the German economy, 2024 could actually have been the year of recovery,” the IW said in a statement. However, “general conditions remain poor” as the government’s ongoing budget dispute is leading to investment freezes by the private sector, Xinhua news agency reported.

Four weeks after the Federal Constitutional Court overturned the reallocation of 60 billion euros ($64.8 billion) from a Covid-19 emergency fund for climate protection measures, the German government is desperate for a solution to close the gap in the 2024 budget.

According to IW calculations, government spending could be cut by as much as 20 billion euros next year due to the gap.

The option of taking on new debt to close the gap is ruled out for the time being due to the so-called debt brake, which can only be applied in an emergency. Following the Covid-19 years, Germany also used this exception retroactively for the energy crisis in 2023.

Besides domestic issues, Germany will also continue to be affected by geopolitical uncertainties next year. While global trade is still expected to grow by 1 per cent, the industry in Europe’s largest economy is facing stagnation. “The German export model remains in crisis,” the IW said.

In the first 10 months of 2023, German exports already fell by 0.8 per cent year-on-year to around 1.3 trillion euros, according to the Federal Statistical Office (Destatis). During the past three months, the decline picked up to 8.1 per cent in October.

The crisis in the construction industry is also expected to continue due to high interest rates and costs. Despite a growing housing shortage, Germany is behind its construction targets this year, with experts anticipating no improvement in the coming years.

With its “poor economic outlook, Germany stands alone among the major countries,” the IW said. (1 euro = $1.08)