Despite a strong start to the year, Germany’s economy is expected to stagnate in 2024 and continue to lag behind its European peers, according to a report by the German economic institute IW. The manufacturing and construction sectors remain in recession, with consumption predicted to increase as inflation eases. However, this may not be enough for a true upswing in the economy. Investments are hindered by the geopolitical situation and high interest rates, which make financing more expensive.
In 2023, Germany’s economy experienced a 0.2% contraction, making it the weakest performance among major euro zone economies. The IW forecasts zero growth for Germany this year, with other countries like France, Italy, Britain, and the United States expected to expand. Although Germany saw growth of 0.2% in the first quarter of 2024, the previous quarter had seen a 0.5% shrink.
Foreign trade is not expected to provide much economic stimulus, and the unemployment rate in Germany is projected to increase to 6% on average for the year. Despite having an average of 46 million employed people in 2024, the effects of economic weakness are becoming more evident on the labor market. There is a need for policy measures to improve business conditions and unleash the full potential of the German economy.