The German machine is not starting again. Certainly, the largest economy in the euro zone seems to have left the recession behind it, but no strong recovery, likely to make up for the decline of recent years, is to be expected. The council of experts on the German economy, or “council of wise men”, a group of five economists advising the government, lowered its growth forecasts on Wednesday, May 15, during its spring economic report.
The country is expected to record a very small increase in its gross domestic product (GDP) of 0.2% in 2024 and 0.9% in 2025. In their last report, six months ago, the “wise men” predicted further progression by 0.7%. “These are bad numbers”recognized the economist Martin Werding, member of the council, who however counts on “very slow but stable growth, which should continue during the year”.
The performance of the German economy is weighed down by a very disappointing start to the year. In industry and construction, activity is stagnating due to a lack of new orders. Consumption is still hesitant, despite the decline in inflation. The council estimates that price increases should fall to 2.4% in 2024 then 2.1% in 2025, compared to 5.9% in 2023, thanks to a marked decline in energy prices.
Two aggravating factors
This decline should contribute to interest rates falling during 2024, which should facilitate investment conditions, economists hope. In the meantime, foreign trade, traditionally a very important component of German GDP, continues to suffer. “It is striking to note that exports grew more slowly than world trade”underlined Veronika Grimm, also a member of the council.
This discrepancy is worrying. “Although the global economy is picking up, German companies are benefiting less than in the past”notes Monika Schnitzer, president of the board, citing two aggravating factors. “Geopolitical risks remain significant and state spending does not support activity, due to budget consolidation. » Due to strict public debt rules, reinforced by the Constitutional Court in a ruling handed down in November 2023, Berlin is neither able to compensate for sluggish growth nor to strongly support investment. These elements explain why the economy is struggling to recover, while the rest of the euro zone is returning to growth.
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