BERLIN (AP) — Germany’s economy contracted for the second consecutive year in 2024, as cautious consumers curtailed spending and Chinese competition eroded the nation’s traditional exports of automobiles and industrial machinery. The lackluster performance in 2024 solidifies Germany’s position as the weakest major economy in Europe, with no substantial growth recorded over the past four years.
Preliminary official figures released on Wednesday revealed that the Gross Domestic Product (GDP) shrank by 0.2% last year, following a 0.3% decline in 2023. These statistics underscore the concerning trend of stagnation in Germany’s economic growth, with the economy now just 0.3% larger than it was in 2019, the year preceding the onset of the COVID-19 pandemic.
External shocks and domestic challenges have severely impacted German businesses, fueling a national discourse on how to address the economic downturn. The turmoil culminated in Chancellor Olaf Scholz’s three-party coalition government collapsing in November, triggered by Scholz’s dismissal of the finance minister amidst disagreements over economic revitalization strategies. Subsequently, an early election was scheduled for February 23.
Aspiring leaders vying to helm the future government have proposed divergent plans to rejuvenate the economy. Ruth Brand, head of the statistics office, highlighted various short- and long-term obstacles hindering economic progress. These include soaring energy costs following the discontinuation of inexpensive natural gas imports from Russia, elevated interest rates set by the European Central Bank deterring investments in new equipment and vehicles, and a cautious consumer base opting to save rather than spend due to apprehensions about the future.
Spending on hospitality and dining establishments plummeted by 4.4%, while expenditures on apparel and footwear declined by 2.8%, despite a rise in disposable income. Furthermore, intensifying competition from China in key export sectors like automotive, industrial machinery, and chemicals has added to Germany’s economic woes.
Brand remarked on the competitive pressures faced by German exports, noting that although global trade expanded in 2024, German exports dwindled due to enhanced competition, notably from China. Despite the sluggish economic growth, the labor market remains robust, with disposable income on the uptrend alongside salary increments from new wage agreements aimed at offsetting inflation.
However, consumer spending continues to be restrained by a multitude of concerns, including announcements of job cuts at prominent companies such as Volkswagen, steel giant Thyssenkrupp, and automotive technology supplier Bosch. Geopolitical tensions, exemplified by the conflict in neighboring Ukraine, further contribute to the prevailing economic unease.
Brand indicated that the economy likely contracted by 0.1% in the fourth quarter compared to the preceding three-month period. However, this estimate is provisional as comprehensive economic indicators for December are yet to be disclosed.
