The German economy is projected to contract by 0.2% in 2024, according to a revised forecast from the country’s economy ministry. This downward adjustment from the previous 0.3% growth estimate reflects ongoing economic struggles that could make Germany the only G7 nation to experience shrinking output for two consecutive years.

Germany’s economic woes stem from a combination of structural issues and geopolitical challenges. The country’s traditionally strong economic model, built on cheap Russian energy for industry and robust global export markets, has been severely disrupted. Weak global demand and geopolitical tensions have particularly impacted Germany’s export-oriented economy, with exports expected to contract by 0.1% this year.

Economy Minister Robert Habeck highlighted the severity of the situation, noting that Germany hasn’t experienced strong growth since 2018. The country is grappling with a potential recession, defined as two consecutive quarters of economic contraction. Early indicators, including industrial production and business climate data, suggest that the economic downturn has persisted into the latter half of the year.

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To address these challenges, the German government has proposed a growth package comprising 49 measures. However, implementation requires parliamentary approval and support from opposition conservatives in the upper house.

Despite the current difficulties, the ministry projects a return to growth in 2025, with an expected expansion of 1.1%. This anticipated recovery is attributed to increased private consumption driven by higher wages, falling inflation, and tax relief. The government also forecasts a further expansion of 1.6% in 2026.

Inflation is expected to decrease significantly, from 5.9% last year to 2.2% in 2024, and further to 1.9% by 2026. Combined with falling interest rates and projected wage increases, these factors are expected to boost purchasing power and stimulate consumption and investment in the coming years.

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