German economy shrinks for second consecutive year

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The German economy shrank for the second consecutive year in 2024, highlighting the severity of the economic recession facing Europe's manufacturing powerhouse.

Europe's largest economy shrank by 0.2% last year after shrinking by 0.3% in 2023, the Federal Statistics Office said on Wednesday. Economists had expected a 0.2% contraction.

“Germany is experiencing the longest stagnation so far in its postwar history,” said Timo Wollmershäuser, an economist at the Munich economic think tank Ifo. He added that compared with international comparisons, Germany The performance is also obviously poor.

With just six weeks to go before a crucial snap election, Germany is already confirmed to be suffering from one of its most protracted economic crises in decades.

The main issues in the campaign are deindustrialization, infrastructure collapse and whether the country should abandon the debt brake that limits public spending.

Friedrich Merz, chairman of the center-right Christian Democratic Union and likely to be Germany's next chancellor, is campaigning on a reform agenda that promises to cut red tape and taxes and reduce benefits for those without jobs.

Despite the contraction in private sector output, government consumption increased significantly by 2.6% compared with 2023.

Ruth Brand, head of Germany's Federal Statistical Office, blamed “cyclical and structural pressures” for the poor performance, citing “increasing competition in Germany's export industry, high energy costs and high interest rates.” remain high and the economic outlook is uncertain.”

In the three months to December, output fell 0.1% from the third quarter.

Robin Winkler, chief economist for Germany at Deutsche Bank, said the economic contraction in the fourth quarter was “surprising” and “worrying.”

“If this is confirmed, the economy will lose further momentum by the end of the year,” he said. He said this could be driven by “political uncertainty in Berlin and Washington.”

The Bundesbank said last month that the economy would continue to stagnate this year, with growth expected to be just 0.1%, and warned that the trade war with the United States would trigger another year of contraction.

US President-elect Donald Trump has pledged to impose sweeping tariffs of up to 20% on all US imports.

Germany is grappling with a crisis in the auto industry driven by competition from China, the costly transition to electric vehicles, high energy costs and tepid consumer demand.

The Bureau of Statistics said on Wednesday that manufacturing output shrank by 3% and business investment fell by 2.8%.

Germany has seen virtually no meaningful economic growth since the outbreak began, with industrial production more than 10% below its peak and unemployment rising again after falling to historic lows.