The German economy shrank by 0.2% in the last quarter of 2023, marking a greater decline than anticipated. This contraction comes after a marginal increase in the previous quarter, highlighting ongoing economic challenges. Despite increased household and government consumption expenditures, exports saw a notable decrease, further impacting the economy. Analysts had predicted a smaller decline of 0.1%, underscoring the unexpected nature of the downturn.
On an annual basis, Germany's economic performance has been sluggish, with contractions of 0.3% in 2023 and 0.2% in 2024. This pattern of stagnation has persisted over the past two years, as quarterly GDP readings have hovered near the flatline. Finance Minister Jörg Kukies emphasized the need to tackle the economy's structural weaknesses to foster growth.
"The structural weaknesses of our economy absolutely have to be addressed" – Jörg Kukies
The government's forecast for 2025 predicts a modest recovery with a 0.3% growth, a downward revision from the previous estimate of 1.1%. This adjustment reflects ongoing concerns about Germany’s economic health, which Economy and Climate Minister Robert Habeck described as serious.
The downturn is partly attributed to significantly lower exports compared to the previous quarter. While domestic consumption by households and government increased, it was insufficient to offset the decline in exports. As a result, Germany's economic outlook remains uncertain, with structural issues continuing to weigh heavily on its potential for recovery.
Economic analysts highlight that addressing these structural challenges is crucial for revitalizing Germany’s economic prospects. The government is expected to implement measures to tackle these issues, aiming to create a more robust and sustainable economic environment.