Germany’s gross domestic product is now expected to grow by just 0.2% this year, as the country wades in “tricky waters,” German Economy Minister Robert Habeck said Wednesday.
The revised GDP growth forecast is down from a previous estimate of 1.3%. Habeck said the government now anticipates German GDP to increase by 1% in 2025.
Speaking during a news briefing, the minister attributed the revised forecast to an unstable global economic environment and to the low growth of world trade, alongside higher interest rates.
Those issues have negatively impacted investments, especially in the construction industry, he said.
German housebuilding is among the sectors that have been most affected by this, with developers canceling projects and order numbers declining, according to recent data. Analysts fear the sector may face further difficulties this year.
“The economy is in tricky waters,” Habeck said in a statement released online, according to a CNBC translation. “We are coming out of the crisis more slowly than we had hoped.”
This is despite energy costs and inflation falling and consumer spending power increasing again, he said. Habeck nevertheless maintained that Germany has proven resilient in the face of losing access to Russian seaborne crude and oil product supplies, as a result of the war in Ukraine.
Budget crisis
The country narrowly avoided a recession in the second half of 2023, despite its GDP declining by 0.3% in the final quarter as well as for the full-year 2023. The third-quarter GDP for 2023 was revised to reflect stagnation, however. It means the country dodged a technical recession, which is characterized by two consecutive quarters of negative growth.
Habeck pointed to Germany’s recent budget crisis which left a 60 billion euro ($65 billion) hole in the government’s financial plans over the coming years as an additional economic challenge.
Last year, the country’s constitutional court ruled that it was unlawful for the government to reallocate emergency debt that was taken on but not used during the Covid-19 pandemic to its current budget plans. This caused significant disruption to financial planning and forced the government to make cuts and savings.
The biggest challenge for Germany is a lack of skilled workers, which will only intensify in the years ahead, Habeck said in remarks published Wednesday. He also said there were various structural issues which need to be addressed to “defend” the competitiveness of Germany as an industrial hub.
Habeck also addressed the outlook for inflation, saying it is expected to fall to 2.8% throughout 2024, before returning to the 2% target range again in 2025. The harmonized consumer price index for January 2024 came in at 3.1% on an annual basis.