Germany Faces Economic Stagnation amid Challenges to Growth

By Evans Momodu
3 minute digest

Germany's economy contracted for the second consecutive year in 2024, marking the country’s worst period of economic stagnation since World War II.

Early estimates from Germany’s Federal Statistics Office indicate a 0.2% contraction for the year, following a 0.3% decline in 2023. Unexpectedly, the economy is thought to have shrunk in the final quarter of 2024, despite forecasts for modest growth.

Chancellor Olaf Scholz faces growing economic challenges just weeks before national elections. A struggling manufacturing sector, impacted by high energy costs from the ongoing repercussions of the Ukraine war and competition from Chinese manufacturers, continues to weigh on growth.

Germany’s iconic carmakers—Volkswagen, Mercedes-Benz, and BMW—are grappling with the costly transition to electric vehicles (EVs), as Chinese competitors like BYD offer lower-cost alternatives.

Industrial production in November 2024 was 15% lower than its 2017 peak, reflecting the cumulative effects of high costs, competition, and incomplete recovery from the COVID-19 pandemic.

German consumers remain cautious, with spending hampered by economic uncertainty and declining house prices. Although homeownership is relatively low compared to other OECD nations, German homeowners have a significant portion of their wealth tied to property, making the housing market's struggles a notable drag on consumer confidence.

Employee lay-offs have further darkened Germany's economic outlook. Key German companies like Siemens, Bosch, Thyssenkrupp, and Deutsche Bahn cut over 60,000 jobs in 2024.

Bosch alone announced plans to lay off 7,000 workers in November. More layoffs are anticipated in 2025, adding to economic uncertainty.

Adding to Germany’s woes are the looming U.S. tariffs under President-elect Donald Trump’s administration.

With Germany's trade surplus with the U.S. reaching an estimated €65 billion in 2024, it is likely to become a primary target for protectionist measures.

Regardless of the upcoming election results, Germany's economic outlook for 2025 remains bleak, with energy prices, trade tensions, and structural challenges in manufacturing and consumer spending set to persist.
Source: Sky news