The German economy will contract for a second year in a row, the Sueddeutsche Zeitung newspaper reported on Sunday. Hammered by soaring energy costs after cutting itself off from Russian gas, Germany was the only major developed economy to shrink last year.
According to the newspaper, Germany’s Economy Ministry plans to downgrade its 2024 forecast from a growth rate of 0.3% to a contraction of 0.2%. After last year’s contraction of 0.3%, the latest revision will mark the second straight year of recession in Germany.
The ministry will announce a projected growth rate of 1.1% in 2025 and 1.6% in 2026, the report continued, noting that Economy Minister Robert Habeck was counting on a package of tax cuts and energy subsidies to boost production and spending.
German economic institutes aren’t convinced that these measures will work. In a report published last month, a group of six leading think tanks predicted a growth rate of 0.8% in 2025 and 1.3% in 2026.
Energy prices soared in Germany after the Ukraine conflict began in 2022, when Berlin stopped importing Russian oil and gas. Germany relied on Russia for 55% of its natural gas imports before the conflict, and with the country already phasing out its nuclear power infrastructure in favor of renewables, the shortfall caused energy prices to soar and drove up the cost of manufacturing.
These energy woes, coupled with increased competition from China, have forced Germany’s manufacturing giants to cut costs and downsize their operations, with Volkswagen announcing last month that it may close two factories – the first plant closures in the firm’s 90-year history. According to government figures, Germany’s industrial output fell by 5.3% between July 2023 and July 2024, while orders for German-made goods have similarly plummeted.
Germany’s failure to protect its energy sector from energy price spikes is expected to turn the 2020s into “a lost decade,” the Berlin-based Forum for a New Economy warned earlier this year, calling the crisis “the worst economic downturn in the country since World War II.”
The economic crisis has contributed to Chancellor Olaf Scholz’ record unpopularity. According to an ARD-DeutschlandTREND survey taken last month, just 18% of Germans are satisfied with Scholz’s job performance, the lowest figure ever recorded for a German leader. By contrast, the lowest rating ever recorded for former Chancellor Angela Merkel was 40%, while Gerhard Schroeder bottomed out at 24%.