(Bloomberg) — Germany’s economy shrank for a second consecutive year in 2024 and is unlikely to grow much in 2025, laying bare the challenge for the country’s new government once snap elections are held in February.
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Gross domestic product fell by 0.2% after dropping 0.3% in 2023, the statistics office said Wednesday. It’s only the second time since 1950 that output has contracted for two years in a row.
The struggles of the continent’s largest economy are an overriding theme of an election that many hope will bring more growth-oriented policies capable of helping drag the 20-nation euro zone out of its own rut.
But few foresee quick fixes to issues that include weak global demand, a manufacturing malaise — particularly among carmakers — the lingering effects of the energy crisis, stifling red tape and a dearth of skilled workers.
Germany was the only Group of Seven economy to shrink in 2023 and is the first to publish full-year numbers for 2024. Its prospects for 2025, however, remain bleak. The Bundesbank predicts growth of just 0.2% and warns that another contraction is even possible if US President-elect Donald Trump follows through on his tariff threats.
Economic decline and squabbling over how to arrest it were big factors in the downfall of Germany’s three-party coalition in November. In the early ballot on Feb. 23, Chancellor Olaf Scholz looks set for defeat by Friedrich Merz, who leads the conservative CDU/CSU bloc and is promising fewer regulations and lower taxes.
How the next government deals with German limits on state borrowing and deficits, known as the debt brake, will be crucial. The stringent rules, long championed by conservative politicians, may be overhauled to allow for more flexibility to fund investments in things like infrastructure, energy and defense.
Germany’s statisticians said fourth-quarter GDP dropped 0.1% from the previous three months, though that wasn’t enough to produce a positive result for the year as a whole.
The country isn’t alone in Europe in enduring a rough patch. France, the euro area’s No. 2 economy, is grappling with fiscal and political upheaval that will require years of belt-tightening that’s likely to weigh on growth.
A rare bright spot is European Central Bank monetary policy, with officials in Frankfurt set to continue lowering interest rates after cutting them four times in 2024.
–With assistance from Kristian Siedenburg.
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