LDN - Business

Germany's economy shrank for the second consecutive year in 2024

[January 15, 2025] By DAVID McHUGH and GEIR MOULSON

BERLIN (AP) — The German economy shrank for the second straight year in 2024 as worried consumers held back on spending and Chinese competition ate into the country's traditional exports of cars and industrial machinery.

The year's weak performance underlines Germany's status as Europe's worst performing major economy and shows the country as having no meaningful growth in four years.

Gross domestic product contracted by 0.2% last year following a 0.3% decline in 2023, according to preliminary official figures released Wednesday, weeks before an election in which the economy is the top issue.

The economy is now only 0.3% bigger than it was in 2019, the year before the COVID-19 pandemic.

German business has been battered by external shocks and homegrown problems, unleashing an angst-ridden national debate over how to remedy the situation. Chancellor Olaf Scholz’s three-party coalition government collapsed in November when Scholz fired his finance minister in a dispute over how to revitalize the economy. That paved the way for an early election on Feb. 23.

Contenders to lead the next government have made contrasting proposals on how to inject new vigor into the economy.

Ruth Brand, the head of the statistics office, ticked off the list of short- and long-term challenges: higher energy prices after the loss of cheap natural gas from Russia; high interest rates from the European Central Bank that deter investment in new machinery and vehicles; and consumers worried about the future who are saving their wages instead of spending it.

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The buildings of the banking district are pictured in Frankfurt, Germany, Tuesday, Nov. 12, 2024. (AP Photo/Michael Probst, File)

Spending on hotels and restaurants sagged by 4.4% and outlays for clothing and shoes fell by 2.8% despite rising disposable income.

On top of that comes increasing competition for export markets from China in traditional areas of German strength such as cars, industrial machinery and chemicals.

“German exports saw themselves exposed to stronger international competition, not least from the People's Republic of China,” Brand said. “German exports shrank although world trade increased in 2024.”

Despite the weak growth figures, the jobs market remains strong and disposable income is rising along with pay raises from new wage agreements aimed at making up for inflation. But willingness to spend is being held back by worries fed by a range of factors, including a drumbeat of job cut announcements at major companies including Volkswagen, steelmaker and industrial conglomerate Thyssenkrupp and auto technology supplier Bosch, and by the war next door in Ukraine.

Brand said that the economy is believed to have shrunk by 0.1% in the fourth quarter compared with the previous three-month period. That, however, is a rough initial estimate because hard economic data for December have not yet been released.

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