Grim economic outlook adds to Germany's woes

Germany's finance minister has said the country's economy is "treading water" and that the government "cannot be satisfied with economic development" ahead of Wednesday's announcement of a government forecast that is expecting gross domestic product, or GDP, to decline in 2024.

Christian Lindner said the government's proposed growth initiative, which is still seeking approval from the country's parliament, "is a first step toward enabling an upturn, but we have to build on it … we have a structural change that is combined with a loss of competitiveness".

Economy Minister Robert Habeck will present the figures on Wednesday but has already made public comments preparing people for bad news.

He said economic data was being adjusted "downwards", a comment that backs up a report in the South German newspaper that having previously been estimated to be at 0.3 percent growth, GDP is now expected to drop by 0.2 percent for the year, a bitter pill that cannot be sugared by a forecast of 1.1 percent growth for next year.

The German Trade Association added to the climate of gloom by highlighting that consumer spending has fallen for the fourth month in a row, with no sign of it turning round any time soon, and data from the Munich-based Ifo Institute for Economic Research reinforced the bleak outlook.

"Consumers are unsettled about the economic policy environment," said economist Patrick Hoppner. "This does not bode well for a dynamic development in private consumer spending for the rest of 2024."

Ending the year in recession would be another blow following on a 0.3 percent GDP shrinkage in 2023.

"It is worrying that the German economy has hardly grown at all since the outbreak of coronavirus," Commerzbank's Chief Economist Joerg Kraemer said in January 2024, when the 2023 figures were announced. "This is rare and brings back memories of the years following the bursting of the stock market bubble at the start of the millennium."

As the largest economy in the European Union, what happens in Germany has an impact far beyond its own borders, and in recent years it has been buffeted by the challenge of high energy costs, the economic and political shockwaves of the Russia-Ukraine conflict, a shortage of skilled labor, and also a changing trade relationship with China.

The coalition government of Chancellor Olaf Scholz has come in for heavy criticism on other issues, particularly immigration and national security, and the build-up to the federal elections in September 2025 has already begun, with Friedrich Merz, the leader of the conservative Christian Democratic Union, announcing that he will run against Social Democrat Scholz.