Last year, the German economy was the weakest among the large eurozone countries

In 2023, Germany’s economy was the weakest among the major eurozone countries due to high energy prices, weak export markets, and record high interest rates. According to experts, it will face difficulties this year as well.

According to Deutsche Welle, economists and industry associations agreed that 2023 was a year of stagnation. The beginning of 2024 does not look promising either.

In mid-November 2023, the country’s Constitutional Court rejected the government’s decision to reallocate €60 billion from unused coronavirus funds to the Climate and Transformation Fund (CTF). The government coalition’s plans were heavily dependent on using this money in the coming years, and this created a large hole in the budget. New borrowing, which could have been approved by the Parliament, was not allowed by the so-called «debt brake», which limits the annual public deficit to 0.35% of GDP.

In December, the government coalition reached an agreement on the federal budget for 2024 and also reduced the expenditures of the climate fund. The budget will be reduced by €17 billion by cutting federal grants, environmental subsidies, and certain expenditures in a number of ministries. In addition, it is planned to return to compliance.

Currently, the government’s economic forecast calls for GDP growth of 1.3% in 2024, but analysts estimate it to be well below 1%.

At the end of last year, the country’s three leading economic institutions downgraded their economic growth expectations for 2024 as the budget crisis delays the recovery, Reuters notes. Now Ifo expects Germany’s economy to grow by 0.9% next year instead of 1.4%, RWI has lowered its forecast to 0.8% from 1.1%, and DIW – to 0.6% from 1.2%.

At the same time, the UN’s annual report on the World Economic Situation and Prospects 2024 states that among the major European economies, Germany has been particularly hard hit by recent shocks. Its GDP is projected to decline by 0.1% in 2023, and is expected to recover to 0.7% in 2024, but the country faces significant structural problems.

According to experts, two new risk factors have emerged for the German economy after the budget crisis: fiscal austerity and political uncertainty, as financial disputes have increased tensions in the tripartite coalition.

In addition, German farmers began nationwide protests against government plans to cut agricultural subsidies. In some areas, they used tractors to block access roads to highways. This, in particular, led to a halt in production at the Volkswagen plant in Emden in northwestern Germany. And members of the union representing machinists are planning strikes over disputes with railroad operator Deutsche Bahn over working hours and pay.

The country is also facing a labor shortage. Chronic problems include bureaucratic red tape and lack of investment, which, in particular, are slowing down the energy transition. At the same time, Germany’s trade-oriented economy is sensitive to international events that weaken external demand.

As GMK Center reported earlier, Germany is facing the problem of creeping deindustrialization, warned Salzgitter CEO Gunnar Gröbler. If producers of key products needed for the industry, such as steel and chemicals, leave the region due to high energy prices, there is a risk of losing the entire value chain.