Economy

German economy ‘sluggish but stabilising’, economic advisers tell government

Economists slash growth forecast for 2024 from 0.7% to just 0.2% in spring report and say proper growth will only return next year

Shopping in Berlin: Prof Martin Werding, economist at the Ruhr University, said: 'Private households remain hesitant to consume, while industry and construction report few new orders. However, we expect the German economy to gain some momentum throughout 2024.'

Derek Scally
Wed May 15 2024 - 19:10

Germany’s economy remains on the critical list as its leading economists on Wednesday slashed their growth forecast for 2024 from 0.7 to just 0.2 per cent.

Presenting their spring report, economists on Germany’s independent economic council, which reports to the federal government, diagnosed Europe’s largest economy as sluggish, but stabilising. As in their previous autumn forecast, an economic uptick remains six months in the future.

Overall, the economists say Germany’s recession-hit economy will only start to grow again properly next year, with 0.9 per cent forecast for 2025.

The latest report tallies with other forecasts for Germany: 0.1 per cent from the European Commission and 0.3 per cent from the federal government itself.

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Presenting the grim report on Wednesday in Berlin, council chairwoman Veronika Grimm said the most German manufacturing and exporting firms can expect this year is a boost from abroad. But even there they can expect “strong competition, rising labour costs and elevated energy prices”, she added.

[ Irish economy expected to rebound on back of improving global trade and falling inflation ]

For now, though, ongoing economic and political uncertainty means Germans are not spending.

“Private households remain hesitant to consume, while industry and construction report few new orders,” said Prof Martin Werding, another council member and economist at the Ruhr University. “However, we expect the German economy to gain some momentum throughout 2024.”

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With German finance minister Christian Lindner pushing radical cuts to government spending, the economists repeated old demands to stimulate the sclerotic German economy. Their main proposal: big ticket spending financed by motorway tolls for private cars – a political hot potato.

“The foreseeable growth in transport volumes will further increase the strain on the infrastructure, which will require extensive upgrades,” the economists wrote, proposing “a mileage-based car toll” based on vehicle weight.

A previous attempt to introduce a toll in 2019 ended in disaster because the last Merkel government proposed charging only non-German registered cars. This was struck down as illegal by the European Commission – but not before the transport minister had signed contracts with operators, who secured €234 million in compensation as a result.

In their report, the economic council also took aim at Germany’s struggling labour market.

[ Euro zone inflation to fall faster than expected, EU says ]

Since 2001, German employees have been entitled to move away from a full working week, and now 31 per cent work fewer than the full 37-hour week. According to recent Organisation for Economic Co-operation and Development (OECD) and Eurostat figures, Germans work the least in Europe – an average of 35.3 hours.

Conservative politicians have pounced on the numbers as proof that the 2001 rule was a mistake and must be reversed.

“Part-time work must be the exception, not the rule,” said Michael Kretschmer, minister president of Saxony, to the Handelsblatt business newspaper.

Facing re-election in September, he argues that Germany must “ensure that we come out of the crisis with growth and full employment”. Currently, Germany’s jobless rate is 6 per cent.

The economic experts suggested the problem is less one of people being unwilling to work, and more one of a shortage of people with the right skills. “Companies are finding it increasingly difficult to fill vacancies,” says the spring economic report.

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin

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