BERLIN — Germany’s economy has experienced a contraction for the second consecutive year in 2024 as consumers, increasingly apprehensive about the future, have reduced their spending habits. Compounding the situation is intensified competition from China, which has severely impacted Germany’s historically strong exports in the automotive and industrial machinery sectors.
The decrease in economic performance reinforces Germany’s reputation as the worst-performing major economy in Europe, reflecting stagnation with no significant growth over the last four years. Preliminary data revealed that the gross domestic product (GDP) shrank by 0.2% in 2024, following a 0.3% drop in 2023. These findings emerged just weeks before an election where economic concerns are at the forefront of public discussion.
As of now, the country’s economy is merely 0.3% more robust than it was in 2019, the year prior to the onset of the COVID-19 pandemic. Business activities in Germany have been hindered by both external pressures and internal difficulties, prompting a nationwide debate on appropriate solutions. Chancellor Olaf Scholz’s three-party coalition faced a significant setback when it collapsed in November, following the dismissal of his finance minister amidst disputes on economic recovery strategies, setting the stage for an early election scheduled for February 23.
Those vying to lead the next government have presented opposing strategies aimed at rejuvenating the economy. Ruth Brand, the head of the statistics office, identified a series of short- and long-term hurdles: the surge in energy prices caused by decreased access to affordable natural gas from Russia; elevated interest rates imposed by the European Central Bank that discourage investment in new technologies; and a population increasingly focused on saving rather than spending due to economic uncertainties.
Consumer spending in areas such as dining and accommodation fell by 4.4%, while expenditure on clothing and footwear decreased by 2.8%, despite an increase in disposable income. The country also faces rising competition from China in its traditional export strongholds, including automobiles, machinery, and chemicals.
Other persistent issues afflicting the German economy comprise bureaucratic inefficiencies and a lack of skilled labor. Brand noted, “German exports are more vulnerable to increased international competition, notably from China. Despite a rise in global trade during 2024, German exports have diminished.”
Nils Jannsen from the Kiel Institute for the World Economy remarked, “The German economy is entrenched in stagnation,” forecasting bleak prospects for growth in the upcoming year. He highlighted the impending threat of new trade measures from the United States, including potential tariff increases from President-elect Donald Trump, who is set to take office shortly.
Despite the disappointing growth statistics, the employment sector remains resilient, and disposable incomes are on the rise due to wage increases aimed at counteracting inflation. However, consumer spending is stifled by various anxieties, including numerous job cut announcements from major corporations such as Volkswagen and Thyssenkrupp, as well as ongoing geopolitical tensions, notably the war in Ukraine.
Brand indicated that it is estimated the economy contracted by 0.1% in the fourth quarter compared to the preceding quarter, although this projection remains preliminary, as comprehensive economic data for December has yet to be disclosed.
