Germany’s Economy Faces Second Consecutive Year of Recession

Germany’s Economy Ministry is set to revise its already modest growth forecast, according to the Sueddeutsche Zeitung.

The German economy is projected to contract for the second consecutive year, reported the Sueddeutsche Zeitung newspaper on Sunday. Severely impacted by soaring energy costs following the cessation of Russian gas imports, Germany was the only major developed economy to experience a decline in GDP last year.

The newspaper cites the Economy Ministry’s intention to downgrade its 2024 forecast from a 0.3% growth rate to a 0.2% contraction. Following last year’s 0.3% contraction, this latest revision will mark Germany’s second consecutive year in recession.

The report indicates that the ministry will project a 1.1% growth rate in 2025 and 1.6% in 2026, attributing these projections to Economy Minister Robert Habeck’s reliance on a package of tax cuts and energy subsidies to stimulate production and spending.

German economic institutions remain unconvinced about the efficacy of these measures. In a report published last month, a consortium of six leading think tanks predicted a growth rate of 0.8% in 2025 and 1.3% in 2026.

Energy prices surged in Germany following the commencement of the Ukraine conflict in 2022, prompting Berlin to halt imports of Russian oil and gas. Prior to the conflict, Germany relied on Russia for 55% of its natural gas imports. As the country was already phasing out its nuclear power infrastructure in favor of renewables, this energy shortfall resulted in skyrocketing energy prices and escalating manufacturing costs.

These energy challenges, coupled with intensified competition from China, have compelled Germany’s manufacturing giants to implement cost-cutting measures and downsize operations. Last month, Volkswagen announced its potential closure of two factories, marking the first plant closures in the firm’s 90-year history. According to government statistics, Germany’s industrial output declined by 5.3% between July 2023 and July 2024, while export orders for German-made goods have similarly plummeted.

Germany’s failure to safeguard its energy sector from energy price spikes is projected to transform the 2020s into “a lost decade,” according to the Berlin-based Forum for a New Economy, which earlier this year characterized the crisis as “the worst economic downturn in the country since World War II.”

The economic crisis has contributed to Chancellor Olaf Scholz’s record low popularity. An ARD-DeutschlandTREND poll conducted last month revealed that only 18% of Germans are satisfied with Scholz’s job performance, the lowest figure ever recorded for a German leader. By contrast, the lowest rating ever recorded for former Chancellor Angela Merkel was 40%, while Gerhard Schroeder’s lowest rating stood at 24%.