German economy contracts for second consecutive year in 2024

Germany’s economy contracted for the second consecutive year in 2024, highlighting the severity of the downturn facing Europe’s largest economy.

Europe’s largest economy shrank by 0.2% last year, following a 0.3% contraction in 2023, according to the Federal Statistical Office on Wednesday. This aligns with economists’ expectations of a 0.2% decline.

While private sector output declined, public consumption rose sharply by 2.6% compared to 2023. In the final quarter of 2024, output fell by 0.1% compared to the third quarter.

Manufacturing output contracted by 3%, while corporate investment dropped by 2.8%, the statistical office reported.

Ruth Brand, head of the Federal Statistical Office, attributed the poor performance to “cyclical and structural pressures,” citing increased competition for Germany’s export industry, high energy costs, persistently high interest rates, and an uncertain economic outlook.

“Germany is experiencing the longest recession in its post-war history,” said Timo Wollmershäuser, an economist at the Munich-based economic think tank Ifo. He added that the country is also significantly underperforming in international comparisons.

Robin Winkler, Deutsche Bank’s chief economist for Germany, described the fourth-quarter contraction as a “surprise” and “worrying.” He suggested that the loss of economic momentum was likely due to “political uncertainty in Berlin and Washington.”

The Bundesbank warned last month that the recession would continue into 2024, predicting growth of just 0.1% and cautioning that the trade war with the US could trigger another year of economic contraction.

Campaigning for the 23 February elections has focused on deindustrialisation, crumbling infrastructure, and debates over whether Germany should abandon its debt brake, which limits public spending.

Friedrich Merz, leader of the Christian Democratic Union (CDU) and a likely candidate for Germany’s next chancellor, is campaigning on a reform agenda. He has promised to cut red tape and taxes while rolling back social benefits for the unemployed.