Economic Stagnation: How Germany’s Sluggish Start to 2024 is Impacting Growth

IW Prognose: Deutsche Wirtschaft wird voraussichtlich 2024 stagnieren

Despite a strong start to the year, Germany’s economy is predicted to stagnate in 2024. The manufacturing and construction sectors are still experiencing a recession, while consumption is expected to be the only bright spot as inflation eases. However, consumption alone will not be enough to drive a real upswing in the economy. Investments need to pick up, but they are currently depressed due to geopolitical tensions and high interest rates.

The German economy shrank by 0.2% last year, making it the weakest performance among large euro zone economies. Germany is forecasted to see 0% growth this year, lagging behind countries like France, Italy, Britain, and the United States. While Germany managed to avoid a recession at the beginning of the year with a 0.2% growth in the first quarter, the economy had shrunk by 0.5% in the last quarter of 2023. The German government predicts 0.3% GDP growth for this year.

According to IW, foreign trade is expected to remain weak and provide little economic stimulus in 2024. The unemployment rate in Germany is projected to increase to 6% on average for the year, up from 5.7% in 2023 despite a record number of 46 million employed people in 2024. The effects of economic weakness on the labor market in Germany are becoming more evident as policy measures that improve business conditions are needed to prevent wasting its economic potential further into debt.

In summary, despite some improvements in certain sectors such as consumption and foreign trade remaining weak, investments need significant improvement before we can expect real growth in Germany’s economy next year.

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