German GDP to grow by 0.2% in 2024, 0.9% in 2025: GCEE

The country’s inflation rates are expected to drop to 2.4 per cent this year and 2.1 per cent in 2025. However, rising labour costs and weak productivity growth will slow the further decline in inflation, GCEE said in a release.

Economic growth in Germany is still characterised by sluggish demand.

“Private households remain hesitant to consume, while industry and construction report few new orders,” explains GCEE member Martin Werding.

Rising real incomes should bolster private consumption, supporting the economy.

Global trade and global industrial production are expected to increase throughout 2024. “German exports will benefit from rising global trade over the next two years. However, export-oriented companies will face strong competition, rising labour costs and elevated energy prices,” says another member Veronika Grimm.

Structural conditions in the German labour market have deteriorated due to demographic changes and reduced working hours. The labour market has become less dynamic in recent years: Companies are increasingly struggling to fill vacancies. At the same time, many companies are reluctant to lay off employees despite the poor economic situation, GCEE noted.

“Fiscal policy is too tight. The future direction of budget and economic policy is uncertain because the Federal Government's consolidation strategy for 2025 remains unclear,” says a third council member Achim Truger. In particular, whether additional savings efforts will be necessary to comply with the debt brake remains an open question.

Growth prospects for the German economy remain weak in terms of potential output through the end of the decade. Demographic changes and the resulting decline in labour supply are particularly weighing on the medium-term outlook.

ALCHEMPro News Desk (DS)