BERLIN — Germany’s economy shrank for the second straight year in 2024 as worried consumers held back on spending and Chinese competition ate into the country’s traditional exports of cars and industrial machinery.
The year’s frail act underlines Germany’s position as Europe’s worst performing major economy and shows the country as having no meaningful growth in the history four years as it has struggled to deal with major shifts in the global economy.
Gross domestic product contracted by 0.2% last year, following a 0.3% decline in 2023, according to preliminary official figures released Wednesday, weeks before an election in which the economy is the top issue.
The economy is now only 0.3% bigger than it was in 2019, the year before the COVID-19 pandemic.
German business has been battered by external shocks and homegrown problems, unleashing an angst-ridden national debate over how to remedy the circumstance. Chancellor Olaf Scholz’s three-event coalition government collapsed in November when Scholz fired his finance minister in a dispute over how to revitalize the economy. That paved the way for an early election on Feb. 23.
Contenders to navigator the next government have made contrasting proposals on how to inject recent vigor into the economy.
Ruth Brand, the head of the statistics office, ticked off the list of short- and long-term challenges: higher vigor prices after the setback of cheap natural gas from Russia; high profit rates from the European Central lender that deter property in recent machinery and vehicles; and consumers worried about the upcoming who are saving their wages instead of spending them.
Spending on hotels and restaurants sagged by 4.4% and outlays for clothing and shoes fell by 2.8% despite rising disposable returns.
On top of that comes increasing competition for export markets from China in traditional areas of German strength such as cars, industrial machinery and chemicals.
Other, more chronic issues include excessive bureaucracy and a shortage of talented labor.
“German exports saw themselves exposed to stronger international competition, not least from the People’s Republic of China,” Brand said. “German exports shrank although globe trade increased in 2024.”
“The German economy is mired in stagnation,” said Nils Jannsen of the Kiel Institute for the globe Economy. And prospects for growth in the coming year are “gloomy,” he said, with the “sword of Damocles” hanging over the export-oriented economy from feasible recent U.S. trade measures such as higher tariffs on imported goods from the incoming administration of President-elect Donald Trump, who takes office in less than a week.
Despite the frail growth figures, the jobs economy remains powerful and disposable returns is rising along with pay raises from recent wage agreements aimed at making up for expense boost.
But a willingness to spend is being held back by worries fed by a range of factors, including a drumbeat of job cut announcements at major companies including Volkswagen, steelmaker and industrial conglomerate Thyssenkrupp and auto technology supplier Bosch, and by the war in Ukraine.
Brand said that the economy is believed to have shrunk by 0.1% in the fourth quarter compared with the previous three-month period. That, however, is a rough initial approximate because challenging economic data for December haven’t yet been released.
