Germany’s economy shrinks for the second year in a row amid a political crisis economy

Germany’s economy recorded a contraction for the second year in a row in 2024, according to official figures released on Wednesday, with little hope of achieving a strong recovery ahead of the elections scheduled in Europe’s largest economic power next month.

The gross domestic product in the euro zone’s largest economy declined by 0.2% last year, according to preliminary data from the federal statistics agency (Destatis), after a contraction of 0.3% in 2023.

Difficulties

The German economy has faced difficulties ranging from rising energy costs affecting its manufacturing sector to weak demand from China and other export markets to deep-rooted structural problems such as a shortage of skilled workers.

Destatis President Ruth Brand said the economy faced “recurring and structural pressures” last year.

“These include increased competition for the German export sector in key selling markets, high energy costs, a high interest rate, and an uncertain economic outlook,” she added.

Preliminary data also showed that the economy recorded a contraction of 0.1% in the last quarter of last year compared to the previous quarter.

Fears are exacerbated that the economy will have difficulty improving next year, for reasons including the political crisis ravaging the country.

elections

After the collapse of Chancellor Olaf Scholz’s coalition, Germany is preparing to organize early elections on February 23, which are expected to be followed by a period of paralysis before a new coalition is formed.

Meanwhile, US President-elect Donald Trump’s threat to impose tariffs on imports from the largest economic power exacerbates the fears of German exporters.

The data released Wednesday are in line with most expectations, including those from the government.

Last December, the German Central Bank reduced its growth forecast in 2025 to 0.2%, compared to previous estimates of 1.1%.