The German economy contracted by 0.2% in 2024, marking the country’s second consecutive yearly slowdown, as per data from statistics office Destatis released on Wednesday. Economists polled by Reuters had anticipated this decline, in line with the forecasts of the European Commission and a group of Germany’s leading economic institutes, which had both predicted a 0.1% dip in the German GDP for 2024.
Ruth Brand, president of the German statistics agency, attributed the weaker economic performance to “cyclical and structural pressures.” Factors such as heightened competition in key export markets, high energy costs, elevated interest rates, and an uncertain economic outlook were identified as hindrances to stronger economic development.
Destatis reported that the manufacturing and construction sectors experienced setbacks in 2024, while the services sectors saw growth during the same period. The country has been grappling with a persistent housing crisis, influenced by increased interest rates and construction expenses. Additionally, key industries like the automotive sector have faced challenges, including the shift to electric vehicles and competition from Chinese counterparts.
Following the data release, the German stock index DAX rose by 0.47% at 10:24 a.m. London time. Germany’s economy had previously contracted by 0.3% in 2023.
In a preliminary reading of the gross domestic product (GDP) for the fourth quarter, Destatis reported a 0.1% decline in the economy compared to the previous quarter. The official first reading for the fourth quarter GDP will be released later this month.
Deutsche Bank’s chief Germany economist, Robin Winkler, expressed concern over the unexpected contraction in the preliminary fourth-quarter reading, attributing it to ongoing political uncertainties in Berlin and Washington.
Looking ahead, the German economic institute Ifo warned that without economic policy reforms, the German economy may struggle to overcome stagnation in 2025. Ifo projected a modest growth of 0.4% in this scenario, emphasizing the need for measures to prevent manufacturing companies from relocating production and investments abroad. Introducing the right policies could potentially boost investment and employment in Germany, leading to an expansion of up to 1% in the economy, according to Ifo.