Declining exports, expensive energy and a faltering green transition have combined to form a “perfect storm” for the German economy, creating divisions in Chancellor Olaf Scholz’s governing coalition over how to turn the economy around. The German government will on Wednesday present its latest economic forecasts for 2024, with reports suggesting a sharp drop in growth to just 0.2%.
In its autumn forecast, the Government still expected output to rise by 1.3%. The country closed 2023 in recession, showing a contraction of 0.3%, and the latest figures suggest that the first quarter of 2024 will see a further contraction of the economy. Germany also risks weak growth until 2028 if no action is taken.
The German economy, the largest in Europe and traditionally the driving force behind the development of the Eurozone,
is hit by a perfect storm.
Germany’s once mighty industrial sector has been hit particularly hard. Having relied in previous years on cheap imports of Russian natural gas, the industrial sector continues to be hit by rising energy prices caused by Russia’s war with Ukraine.
Businesses are suffering – Aggressive appeals to government and EU
A series of interest rate hikes by the European Central Bank to tame inflation have added to Germany’s woes, dampening demand and investment.
Exports have fallen due to weaker trade with key markets for Germany, such as China, producing more and more products domestically. German chemical giants BASF and Bayer were among about 60 companies this week making a joint appeal to European Union leaders to adopt a “European industrial pact” to help lift the sector out of recession.
“Without a targeted industrial policy, Europe risks becoming dependent on even basic goods and chemicals. Europe cannot afford for something like this to happen to it,” the announcement states. In an open letter published last weekend, 18 federations representing small and medium-sized businesses, which are considered the backbone of the German economy, called on politicians to take action.
“It’s a minute before midnight. What is at stake is nothing less than the rescue” of the German economy, it says.
