Germany's GDP

It was previously predicted that the country's economy will grow by 1.3% this year

The German economy is performing extremely poorly, the government will revise its forecast for GDP growth in 2024 to 0.2% y/y from 1.3% previously expected. This was stated by the Minister of Economy and Climate Protection Robert Habeck, Euractiv reports.

In 2023, Germany’s GDP declined by 0.3% compared to 2022, which increased concerns about the deterioration of Europe’s largest economy.

Politicians and business leaders had hoped that the current year would be marked by more positive prospects, but Habeck’s remarks point to a gloomier scenario.

Recently, the publication notes, the economic downturn in the country has been interpreted by some experts as structural rather than temporary. Germany is struggling with higher energy prices and higher corporate taxes than its global competitors. At the same time, companies complain about the growing regulatory and bureaucratic burden.

Although the country has a much lower public debt than other G7 countries, the government is divided over whether it should increase it to get out of the current recession.

Recently, Habeck put forward the idea of creating a new €30 billion annual fund, financed by public debt, for industrial subsidies in the form of tax breaks similar to the US Inflation Reduction Act (IRA). However, Finance Minister Christian Lindner has called for a broader cut in corporate taxes to be financed by spending cuts.

According to Bloomberg, Habeck cited the November 2023 decision of the Constitutional Court as one of the reasons for the fall in GDP. The court ruled that the redistribution of €60 billion from unused coronavirus funds to the Climate and Transformation Fund (KTF) was unconstitutional. This decision forced the government to reduce the amount of planned assistance to companies and consumers due to high energy prices.

As GMK Center reported earlier, inflation in Germany slowed to 2.9% in January 2024 compared to January 2023. In December, the figure increased by 3.7% y/y. Thus, inflation in the country reached its lowest level since June 2021 (+2.4%).