Germany’s economy faced another contraction in 2024, marking its second consecutive year of decline, as anxious consumers cut back on spending and competition from Chinese manufacturers impacted traditional sectors like automotive and industrial machinery.
According to preliminary official data, the country’s gross domestic product (GDP) decreased by 0.2%, following a previous decline of 0.3% in 2023. This trend has firmly established Germany as the lowest-performing major economy in Europe, reflecting a stagnant growth environment that has persisted for the past four years amidst significant global economic transformations.
The current economic landscape shows that Germany’s economy is only marginally larger—by 0.3%—than in 2019, the year prior to the pandemic’s outbreak. Various external shocks, coupled with domestic challenges, have contributed to a national dialogue filled with concern over how to address these economic setbacks. The fallout from these issues led to the collapse of Chancellor Olaf Scholz’s three-party coalition government in November after a dispute regarding economic revitalization strategies, setting the stage for an early election scheduled for February 23.
Potential leaders vying for the next government have put forward different strategies aimed at reinvigorating the economy. The head of the statistics office, Ruth Brand, emphasized both immediate and long-term hurdles that include escalating energy costs stemming from a decrease in affordable natural gas from Russia, elevated interest rates from the European Central Bank discouraging investments in new machinery and vehicles, and a consumer base that is increasingly focused on saving rather than spending due to economic uncertainty.
In particular, expenditures in the hospitality sector saw a decline of 4.4%, and spending on clothing and footwear dropped by 2.8%, even as disposable incomes rose. Additionally, German exports are facing intensified competition from China in sectors where Germany has traditionally thrived, such as automobiles and industrial machinery.
Moreover, chronic issues such as burdensome bureaucracy and a lack of skilled labor continue to complicate the economic landscape. Brand noted, “German exports are facing stronger international competition, especially from China,” highlighting that German exports have diminished even as global trade showed growth in 2024.
According to economic analyst Nils Jannsen from the Kiel Institute for the World Economy, the German economy is entrenched in stagnation, with dim growth prospects for the upcoming year. This outlook is further complicated by potential trade actions from the incoming administration of President-elect Donald Trump, who may implement higher tariffs on imports.
Nevertheless, the labor market remains robust, and disposable incomes are increasing due to wage adjustments aimed at countering inflation. However, fears surrounding job cuts at major companies such as Volkswagen, Thyssenkrupp, and Bosch, along with the ongoing conflict in Ukraine, are dampening consumer spending willingness.
Brand also indicated an initial estimate suggesting that the economy contracted by 0.1% in the fourth quarter compared to the previous quarter, although this figure is tentative, as comprehensive data for December has not yet been made available.
