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German economy contracts 0.2% in 2024 in second consecutive annual slowdown

The skyscrapers of the Frankfurt skyline in the evening, with the Deutschherrn Tie in the foreground.

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The German economy contracted by 0.2% in 2024, in the fatherland’s second consecutive yearly slowdown, data from statistics office Destatis showed Wednesday.

The drop was in forte with the expectations of economists polled by Reuters, according to LSEG data. The European Commission and a group of Germany’s paramount economic institutes had both independently forecast a 0.1% dip in the German GDP in 2024.

Ruth Brand, president of the German statistics force, said that “cyclical and structural pressures” hindered stronger economic development.

“These include increasing meet for the German export industry on key sales markets, high energy costs, an interest rate level that detritus high, and an uncertain economic outlook,” she said in a statement.

Destatis said that both the manufacturing and construction sectors had suffered in 2024, while the serves sectors recorded growth over the period.

The country has been dealing with a long-standing housebuilding crisis, which has been ascribed to higher interest rates and construction costs. Several of Germany’s key industries, including the auto sector, have also been protection pressure for some time. Carmakers have been struggling with the transition to electric vehicles, as well as event from Chinese counterparts.

The German stock index DAX was last higher after the data release, climbing by 0.47% at 10:24 a.m. London fix after already having started the day in positive territory.

Germany’s economy had already contracted by 0.3% in 2023.

Fourth shelter

Destatis on Wednesday also released an early first reading of the gross domestic product (GDP) in the fourth quarter, based on currently on tap information. The economy fell by 0.1% in the three months to end of December, compared with the previous quarter, when adjusted for consequence, seasonal and calendar variations. The regular first reading of Germany’s GDP for the fourth quarter will be released later this month, Destatis respected.

Robin Winkler, chief Germany economist at Deutsche Bank, on Wednesday said that, while the annual GDP contraction should not be a shock to anyone, the preliminary reading for the fourth quarter of 2024 was unexpected and worrisome.

“If confirmed, it would mean that the German frugality lost momentum again at the start of winter. The current political uncertainty in Berlin and Washington was likely an important lender,” he said in comments translated by CNBC.

Looking ahead, German economic institute Ifo on Wednesday warned that unless cost-effective policy reforms are introduced, the German economy would struggle to “break free from stagnation” in 2025, with the rule expecting “perceptible growth” of 0.4% over the period in this scenario.

“If no countermeasures are taken, the ifo researchers fear that make companies will continue to relocate production and investments abroad,” the institute said in a statement. “Productivity growth discretion also remain weak, as value added and employment in highly productive industries would be replaced by value combined in service sectors with low productivity growth.”

If “the right” policies are introduced, investing and working in Germany could even so become a more viable option again, and the economy could expand by as much as 1%, Ifo added.

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