There was great hope last autumn, but with every passing month it becomes clearer: 2024 will also be a year of economic standstill, stagnation, possibly even regression – or, as Stefan Kooths from the Kiel Institute for the World Economy says (IfW) put it: “The economy in Germany is ailing.”
This is also shown by the joint spring report presented by five leading economic research institutes on Wednesday. According to this, gross domestic product will most likely increase by just 0.1 percent this year – practically not at all. In September, experts had predicted an increase of 1.3 percent for 2024. The forecast for 2025 remains unchanged at plus 1.4 percent.
For the federal government, the headwind in terms of growth and tax revenues comes at the worst possible moment, because at the same time it has to raise more money for the climate-friendly restructuring of the country, strengthening the defense capability and other major projects. The hole in the household is getting bigger and bigger. Economics Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) are working on a package to relieve the burden on companies and overcome the economic crisis. However, an agreement or even a major breakthrough is not yet in sight.
The representatives of the economic research institutes did not have any good figures to announce in Berlin on Wednesday.
(Photo: Kay Nietfeld/dpa)
In their report, the research institutes justify the weak growth with, among other things, the unexpectedly low foreign demand for German industrial goods, the weak construction industry, the high number of sick reports in companies and serious structural problems in sectors that have suffered particularly badly from the high electricity and gas prices. The chemical industry alone is still producing 20 percent less than before the Russian attack on Ukraine, said Timo Wollmershäuser from the Munich Ifo Institute. One must assume that the companies have relocated part of their production abroad.
Despite the concentrated criticism from experts, Habeck appears to be an optimist
This means that Germany is increasingly falling behind internationally, because other countries such as the USA and many EU neighbors are growing significantly faster. Economists are convinced that the traffic lights themselves are partly to blame, as they unsettle companies and consumers with often contradictory policies and prevent investments. “The federal government's problem is probably that it does not have a consensus on the direction of economic and financial policy,” said Kooths. The economists also criticize that politicians are trying to control the behavior of citizens and companies through “small-scale subsidies” on the one hand and billions in state aid on the other, instead of improving the economic conditions for everyone.
In addition, IfW, Ifo, the German Institute for Economic Research (DIW) and the Leibniz Institutes for Economic Research in Halle (IWH) and Essen (RWI) advocate a “careful” reform of the debt brake as well as radical changes in the financial relationships between the federal and state governments and communities. The deficit rule should be changed so that it does not come into full effect again in the year after an economic shock and a suspension of the regulation, but is gradually “reinforced” over three years. This would give the federal government the opportunity to take on a limited amount of additional debt to overcome the crisis.
The experts also want to prevent cities and municipalities, as the most important government clients, from having to regularly restrict their investment activities as soon as the economy goes into a downturn and income falls. In order to prevent this, the municipalities should be more decoupled from the financial situation of the federal and state governments and be allowed to levy a surcharge on income tax. Germany also needs to devote all its efforts to “taking care of the three big Ds: demographics, digitalization, decarbonization,” said IWH expert Oliver Holtemöller. There are major deficiencies in all three areas.
The weak construction industry is also one of the causes of the stagnation.
(Photo: Patrick Pleul/dpa)
Despite the concentrated criticism, Economics Minister Habeck was optimistic that companies will soon invest in the future again with full confidence. “The conditions are ideal for this: energy prices and inflation have calmed down, we are working intensively on reducing bureaucracy, we have opened the doors further to skilled workers, the energy transition is making solid and planned progress,” he said. Above all, people's incomes rose noticeably again. Further growth impulses are now necessary. Habeck: “We are working on that in the government.”
