BERLIN (AP) — Germany’s economy shrank for a second consecutive year in 2024 as worried consumers curbed spending and competition from China eroded the country’s traditional exports of cars and industrial machinery.
This year's weak performance underscores Germany's status as Europe's worst-performing major economy and suggests the country has failed to achieve meaningful growth over the past four years as it grapples with a major shift in the global economy.
Preliminary official data released on Wednesday showed gross domestic product contracted 0.2% last year after falling 0.3% in 2023, just weeks before an election in which the economy takes center stage.
The economy is currently growing just 0.3% compared to 2019, the year before the COVID-19 pandemic hit.
German businesses have been hit by external shocks and domestic problems, sparking a national debate on how to remedy the situation. Last November, Chancellor Olaf Scholz fired his finance minister over a dispute over how to revive the economy, leading to the collapse of the three-party coalition government. This paves the way for an early election on February 23.
Contenders to lead the next government have very different proposals for how to breathe new life into the economy.
Ruth Brand, director of the statistics office, listed a series of short- and long-term challenges: rising energy prices after Russia lost cheap natural gas; high interest rates from the European Central Bank discouraged investment in new machinery and vehicles; consumers worried about the future, they put Save your salary instead of spending it.
Despite an increase in disposable income, spending on hotels and restaurants fell 4.4% and spending on clothing and shoes fell 2.8%.
In addition, in traditional areas where Germany has advantages, such as automobiles, industrial machinery and chemicals, China's competition in the export market is also becoming increasingly fierce.
Other longer-term problems include excessive bureaucracy and a shortage of skilled labor.
"German exports face greater international competition, especially from the People's Republic of China," Brand said. "Despite growth in world trade in 2024, German exports contracted."
"The German economy is at a standstill," said Niels Janssen of the Kiel Institute for World Economics. He said growth prospects for the coming year were "bleak" and that the United States could introduce new trade measures, such as the incoming presidential administration's Higher tariffs are imposed on imported goods, and the “Sword of Damocles” hangs over an export-led economy. Elect Donald Trump, who was inaugurated on Monday.
Despite weak growth figures, the job market remains strong, with disposable income rising amid pay rises under a new wage deal designed to compensate for inflation.
But willingness to spend has been hampered by concerns over a range of factors, including job cuts announced by major companies such as Volkswagen AG, steelmaker and industrial group ThyssenKrupp and automotive technology supplier Bosch, as well as the war in Ukraine.
Brand said the economy is expected to shrink 0.1% in the fourth quarter from the previous three months. However, this is only a rough first estimate as hard economic data for December has not yet been released.