The German economy is performing “dramatically bad”, the country’s economy minister Robert Habeck (Greens) said at a trade fair in Leipzig on Wednesday (14 February), with the government now only expecting a 0.2% growth rate for 2024.
Last year, Germany posted the worst performance across all major global economies, with a GDP contraction of 0.3%, exacerbating concerns over the deteriorating health of Europe’s largest economy.
While politicians and business leaders had hoped 2024 would bring a more positive outlook – with the German government until recently projecting a growth rate of 1.3% over the course of this year – Habeck’s remarks, reported by FAZ earlier on Wednesday, point to a much bleaker scenario.
The government is now set to slash its forecast to 0.2%, Habeck said – conveying a “drammatically bad” situation.
The growth estimate revision of Europe’s industrial and exports engine casts a gloomy shadow on the European Commission’s own economic forecast for the wider bloc due on Thursday (15 February), as the EU’s overall economy traditionally tends to track the German trajectory due to the close trade links most European countries hold with the industrial powerhouse.
Germany’s economic slump has recently been interpreted as structural rather than temporary by several experts, as the country is struggling with higher energy prices and higher corporate taxes than global competitors, while companies complain of an increasing regulatory and bureaucratic burden.
While the country has much lower public debt than other G7 economies, the government is split on whether or not more public debt is needed to escape the current recession.
Habeck recently floated the idea of a new debt-financed fund of €30 billion annually for industrial subsidies in the form of tax credits – resembling the USA’s Inflation Reduction Act (IRA). Finance Minister Christian Lindner (FDP/Renew), however, has voiced a preference for slashing corporate taxes more broadly, financed with expenditure cuts.
[Edited by Anna Brunetti, Nathalie Weatherald]
