Grim prognosis for German economy issued

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GDP is now expected to grow by just 0.1% this year, leading economic think tanks say

A group of leading German economic institutes have slashed growth forecasts for the EU’s top economy in 2024 to 0.1% from an earlier projection of 1.3%.

In a “Joint Diagnosis” report published on Wednesday, the think tanks attributed the downgrade to high interest rates, weak global demand, and political uncertainty, saying these factors had dented hopes of a stronger recovery.

German economic output was barely higher than before the Covid-19 pandemic, as productivity has been at a standstill since then, the institutes said.

“Although a recovery is likely to set in from the spring, the overall momentum will not be too strong,” said Stefan Kooths, head of economic research at the Kiel Institute for the World Economy (IfW).

The economists now expect Germany’s gross domestic product (GDP) to increase by 1.4% in 2025, down from the 1.5% previously forecast.

“There have recently been more headwinds than tailwinds in the domestic and foreign economies,” the report said.

Germany was the only G7 economy to contract last year as it struggled with the fallout from the energy crisis. Official data shows the economy shrank by 0.3% year-on-year in 2023 under pressure from soaring inflation and higher interest rates, as well as general weakness in the global economy.

The latest data reveals that German exports had declined despite rising global economic activity, largely due to lower demand for capital and intermediate goods, which are important for Germany. Price competitiveness for energy-intensive goods has also suffered due to high electricity prices and the outsourcing of some production, the economists said.

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