The downward revision of forecasts comes after a series of bad news which weighed down Germany’s return to school, notably the freezing announced in September of a major factory project by the giant Intel in the country and the announcement by Volkswagen possible factory closures and layoffs.
Consequence of the war in Ukraine and the isolation of the American market
The German economy, which has long benefited from cheap energy thanks to Russian gas delivery agreements and dynamic exports, particularly to China, is bearing the brunt of the effects of the war in Ukraine and the weakness of global demand against a backdrop of protectionist tendencies. China and the United States, “our largest trading partners, are increasingly fragmenting open markets,” Economy Minister Robert Habeck told the press.
“The American market is becoming more and more isolated (…),” he said, a phenomenon that has already occurred under the administration of American President Joe Biden, and “the danger is very real that Donald Trump, if re-elected, will aggravate this conflict.” This could lead to higher tariffs on cars, causing “great concern”. China is adopting “an aggressive export strategy,” continued Robert Habeck.
Companies from the Middle Kingdom are gaining more and more market share on a global scale “partly thanks to subsidies and partly because they have made up for their technological gap”, particularly compared to Germany, which finds itself in a difficult competitive situation.
Other structural challenges hit Germany, such as an aging population, burdensome bureaucracy and a complex ecological transition. The environmentalist minister also attacked the “debt brake” rule enshrined in the constitution and which limits the State’s means of investing. With “more (budgetary) room for maneuver, our economy could finally get out of the impasse,” according to him. The lifting of the said rule is also called for within the industry.
Olaf Scholz put on tax breaks
Despite the enthusiasm linked this summer to Euro football and strong wage increases, private consumption remains weak due to a climate of uncertainty and an increase in unemployment, while external demand and monetary policy Restrictive measures are also weighing on activity, indicating continued weakness in the second half of the year, according to the Ministry of the Economy.
From the end of 2024, the growth dynamic should start to strengthen again, according to the government of Chancellor Olaf Scholz. The latter, still very unpopular, is counting on its “growth initiative” presented this summer and which promises tax breaks, a permanent reduction in energy prices for industry, less bureaucracy and incentives to keep seniors on the job. the labor market and attract qualified foreign workers.
This plan will remain “insufficient to revive the economy”, comments Peter Adrian, president of the German Chamber of Commerce and Industry (DIHK). In September, five major economic institutes (DIW, Ifo, IfW Kiel, IWH and RWI) reduced their growth forecasts, anticipating stagnation or a slight recession, with a modest recovery forecast for 2025 (+0.8%) and 2026 (+1.3%), lower than Berlin’s expectations.
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