The German economy shrank for the second year in a row in 2024. The gross domestic product fell by 0.2 percent compared to the previous year, as reported by the Federal Statistical Office. In 2023 there was a decline of 0.3 percent. Most economists expect slight growth at best for the current year. The Organization for Economic Co-operation and Development (OECD) assumes that Europe’s largest economy will grow slower than any other industrialized nation in 2025.
Last year, the German state once again spent more money than it earned. According to the Federal Statistical Office, federal, state, local and social security spending exceeded revenue by 113 billion euros. “That was around 5.5 billion euros more than in 2023,” it said. In relation to overall economic output, the deficit was 2.6 percent, as in the previous year. In 2022 it was 2.1 percent. The EU Growth and Stabilization Pact sets an upper limit of three percent. The EU deficit targets were therefore met.
The financing deficit was primarily caused by higher spending on pensions and pensions. Significantly more was also spent on nursing care and citizens’ money.
The federal government alone was able to significantly reduce its deficit against the trend, from around 95 billion euros in 2023 to a good 59 billion euros. “The fact that the measures to mitigate the energy crisis – especially the gas and electricity price brakes – expired at the end of 2023 had a particularly relieving effect,” said the statistics office.
Most experts expect new debt in Germany to fall this year.
The reasons for the lull
The German economy has been struggling for a long time. After slight growth in the first quarter of 2024, GDP fell in the second quarter and then increased minimally in the third quarter. According to estimates, it shrank again in the final quarter of 2024. According to the Federal Statistical Office, the gross domestic product fell by 0.1 percent from October to December compared to the previous quarter. However, this “first very early estimate” is still based on an “incomplete database” and is therefore subject to greater uncertainty. Details are expected to be announced on January 30th.
The German economy is under pressure from many sides. China has lost momentum as a growth driver on global markets, and the number of company bankruptcies is increasing domestically. At the same time, the export prospects for the industry are bleak. Key industries such as car manufacturing and chemicals are in crisis, as is housing construction. Consumers are unsettled and private consumption is not really getting going. At the same time, high energy prices and bureaucracy are putting a strain on the location.
The prospects for the new year are not very promising. The economy is hoping for reforms after the federal election. However, under US President-elect Donald Trump, there is a threat of high tariffs on imports from Europe, which would particularly affect Germany as an export nation.
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