Germany’s Economic Uncertainty: Stagnation and Recession Loom in 2024

Despite a stronger than expected start to the year, Germany’s economy is projected to stagnate in 2024. The manufacturing and construction sectors, in particular, are struggling and remain in recession. Consumption is expected to be the only bright spot as it picks up due to easing inflation. However, this alone is not sufficient for a significant economic upswing, as investments also need to increase.

Investment in Germany is currently depressed due to the geopolitical situation and high interest rates, which make financing more expensive. The German economy had a weak performance last year, shrinking by 0.2%, which was the worst among big euro zone economies. IW forecasts zero growth for Europe’s largest economy this year, lagging behind France, Italy, Britain, and the United States, which are all expected to expand.

At the start of this year, Germany managed to avoid a recession by growing 0.2% in the first quarter, following a 0.5% contraction in the last quarter of 2023. The German government predicts a GDP growth of 0.3% for this year. The IW economist Michael Groemling emphasizes the need for a policy boost to improve business conditions in Germany, in order to fully realize its potential.

Despite a record number of 46 million employed people on average in 2024, Germany’s unemployment rate is expected to increase to 6% from 5.7% in 2023, according to IW. The effects of the economic weakness on the labor market in Germany are becoming more visible