Jamie Spencer
The German economy shrank by 0.2% quarter-on-quarter in the final three months of 2024, according to preliminary data from Germany’s statistics office Destatis on Thursday.
This decline was sharper than analysts’ expectations, as a Reuters poll had predicted a 0.1% contraction. While household and government spending increased, exports were significantly lower than in the previous quarter, contributing to the economic slump.
Recession Concerns Grow
Germany’s economy has struggled with sluggish growth, and the latest data raises concerns about a potential winter recession. Carsten Brzeski, global head of macro at ING, noted that Germany’s downturn is now likely to lead to a recession.
“Given the importance of industry for the entire economy, spillovers to other sectors – be it via sentiment or real economic channels – are already happening,” Brzeski warned.
Industrial Struggles and Global Headwinds
The country’s industrial sector remains under pressure, with persistent challenges related to inventories, order books, and looming U.S. tariffs on exports. This is preventing a substantial recovery in key industries, further weighing on economic prospects.
Germany’s economic stagnation has been evident for years, with quarterly GDP readings hovering near the flatline. However, the economy has so far managed to avoid a technical recession, which is defined as two consecutive quarters of contraction.
Annual Contractions and 2025 Outlook
On an annual basis, Germany’s GDP contracted in both 2023 (-0.3%) and 2024 (-0.2%), marking two consecutive years of economic decline.
Looking ahead, some respite is expected in 2025. The German government recently slashed its growth forecast to just 0.3% for the year, a significant downgrade from its previous estimate of 1.1%.
Political Uncertainty and Structural Challenges
Germany’s economy minister Robert Habeck acknowledged the severity of the situation, stating, “The diagnosis is serious.” He cited political uncertainty and the premature end of the current government’s term as factors limiting economic progress.
Germany is preparing for a federal election on Feb. 23, earlier than planned due to the collapse of the ruling coalition late last year. Finance Minister Jörg Kukies emphasized the need for structural reforms to revive economic growth.
“The structural weaknesses of our economy absolutely have to be addressed,” Kukies told CNBC. “It’s really important that we embark on a path of economic growth.”
Conclusion
With economic stagnation persisting and uncertainty surrounding trade policies and political leadership, Germany faces a difficult road ahead. The focus will be on structural reforms and global market conditions as the country attempts to regain momentum in 2025.
