German government now projecting a second year of GDP contraction

The forecast made Germany the only member of the G7 group of industrialised nations projected to experience economic contraction in both 2023 and 2024, according to Reuters.

The ministry previously predicted modest growth of 0.3% for the year, but a failure to recover in the second half led to its downward revision.

Germany’s economic struggles were evident last year when it recorded a 0.3% decline in GDP - the weakest performance among large eurozone economies and other G7 nations.

If the trend continues, Reuters said it would echo the economic difficulties seen in 2002-2003 when Germany’s export and manufacturing sectors faced significant challenges.

Indicators such as industrial production and business climate point to a continuation of the downturn into the second half of this year, raising fears of a potential recession.

Economy minister Robert Habeck cited structural issues and geopolitical pressures as key factors behind the sluggish growth.

In response, the government introduced a package of 49 measures aimed at stimulating the economy.

Habeck was optimistic that the measures, once implemented, would bolster the economy and improve employment rates.

However, the plan would first need to pass both houses of parliament, with the opposition conservatives in the Bundesrat holding significant influence over its approval.

Looking ahead, the ministry said it expected the economy to return to growth in 2025, forecasting a 1.1% expansion.

The recovery was anticipated to be driven by increased private consumption, fueled by higher wages, lower inflation, and tax relief.

Inflation was predicted to ease from 5.9% last year to 2.2% in 2024, with further declines to 2% in 2025 and 1.9% in 2026.

By 2026, Germany’s economy was projected to grow by 1.6%, helped by continued declines in inflation and lower interest rates.

Reporting by Josh White for Sharecast.com.