Germany's economy, Europe's largest, shrank for the second straight year in 2024, according to official data released Wednesday, A2 CNN reports. Germany's gross domestic product (GDP) fell by 0.2% last year, according to the country's Federal Statistical Office, following a 0.3% contraction in 2023.
It is the first time since the early 2000s, when Germany was facing high unemployment, that the economy has shrunk for two consecutive years, according to Carsten Brzeski, global head of macroeconomics at pan-European bank ING.
The data comes just weeks before a crucial snap election, called after Germany's ruling coalition collapsed late last year over disagreements over how to shore up the country's ailing economy. "The hope is that any new German government will decide on a long-term plan for economic reforms and investment," Brzeski said.
The problems facing the German economy are mirrored by the crisis at the country's largest automaker, Volkswagen. In December, the carmaker announced major changes to its operations in the country, including more than 35,000 job cuts and plans to move some production to Mexico.
Like Volkswagen, Germany faces high labor costs, weak productivity growth and competition from China. It can no longer rely on strong demand for its exports in the world's second-largest economy, which is increasingly producing locally many of the goods it previously imported from Europe.
According to Brzeski, German industrial production remains about 10% below its pre-pandemic levels. Potential higher tariffs from the new US administration could worsen the situation due to the potential impact on German exports and "the effect on German investment if companies were to shift production to the US," he said.
Germany's central bank said last month that economic stagnation is expected to continue this year, with GDP "only starting to recover slowly in 2025."
The GDP data does not bode well for the broader European economy, which has struggled to post significant growth after the pandemic and may also face a more strained relationship with one of its largest trading partners, the United States.
Data from the European Union's statistics office on Wednesday showed that industrial production in the 20 countries that use the euro rose slightly in November compared with October. However, it remains 9% below its level seven years ago, partly as a result of high energy prices sustained by Russia's full-scale invasion of Ukraine, according to Capital Economics.
“Surveys suggest that manufacturing will remain weak over the coming months,” wrote Adrian Prettejohn, the firm’s Europe economist. “Moreover, the structural headwinds facing the German auto sector will weigh on eurozone industrial production for an extended period.” (A2 Televizion)
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