Germany, led by Chancellor Olaf Scholz, is in recession and the auto industry is struggling. (Image: GETTY)
Economy Minister Robert Herbeck warned that Germany's struggling economy is facing a second consecutive year of contraction, dealing another devastating blow to the European Union.
The region's most populous and economic powerhouse is already in recession. And Halbeck warned that GDP was likely to contract by 0.2% this year, a sharp downward revision from the previous forecast of 0.3%, with little prospect of improvement anytime soon. growth rate.
The expected decline follows a 0.3% contraction in 2023, making Germany, led by Chancellor Olaf Scholz, the only G7 economy expected to experience negative growth in 2024.
The deepening recession highlights structural challenges that Germany has been battling for some time, particularly its dependence on manufacturing and increasing global competition, particularly from China.
Germany's industry is struggling to adapt to these changes, and the economic outlook for the near term remains bleak.
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Robert Habeck released some bleak data yesterday. (Image: Getty)
Despite the short-term challenges, the government remains cautiously optimistic about the prospects for recovery into next year.
The growth rate is expected to remain at 1.1%, slightly higher than the 1% initially expected, with further growth expected in 2026.
However, such improvements will largely depend on the implementation of structural reforms and favorable global conditions.
“Germany's structural problems are currently hitting us hard,” Habeck said.
“And this is happening amid great geoeconomic challenges. Germany and Europe are in the midst of a crisis between China and the United States and must learn to assert themselves.”
Deutsche Bahn has sold its logistics subsidiary Schenker to a Danish company. (Image: Getty)
In response, he outlined a comprehensive growth package consisting of 49 measures aimed at revitalizing the economy.
That includes boosting investment, increasing productivity and addressing long-standing structural problems.
He also emphasized the importance of political support, noting that the success of these reforms will depend on securing support from both houses of parliament, including the opposition-controlled Bundesrat.
“If we get this right, the economy will be stronger and more people will go back to work,” Habeck said.
Germany is also expected to see major changes in inflation, with the inflation rate expected to fall to 2.2% in 2024 from 5.9% last year.
Further cuts are likely in the coming years, with inflation stabilizing at around 1.9% by 2026. This decline, along with wage increases and tax cuts, is seen as essential to boosting consumer spending, which could spur economic recovery.
However, despite government efforts, economic challenges persist. The Ifo Institute believes that the German economy is currently stuck in a state of “crisis” due to both cyclical and structural problems.
Professor Timo Wollmershauser, Deputy Director of ifo, said there are many factors contributing to the economic downturn, from the country's decarbonization and digitalization efforts to demographic changes and global geopolitical shifts. emphasized.
“While other countries are experiencing an economic upturn, the German economy is stagnant and sluggish,” he told Euronews.
The Manufacturing Purchasing Managers Index (PMI) provides additional evidence of the extent of the country's economic hardship. PMI fell to 40.6 in September, marking the 27th consecutive month of negative growth.
Most concerning is the sharp decline in export orders, affecting key sectors such as automotive and mechanical engineering, both of which are struggling to compete with increasing international competition, particularly from China.
Many German companies are looking overseas for survival, making them equally attractive targets for foreign investors.
National rail operator Deutsche Bahn's recent sale of its logistics subsidiary Schenker to Danish peer DSV for 14 billion euros is likely to ease some of the railway company's financial crisis.
Similarly, Commerzbank, Germany's second-largest private financial company, has also been identified as a likely target for a foreign takeover, and Italian banking giant UniCredit has increased its stake to 21% amid speculation of a possible takeover. %.
European Central Bank (ECB) President Christine Lagarde supports cross-border bank mergers, stressing the need for European banks to integrate to remain internationally competitive.
Some German companies are also moving investments abroad. Chemical giant BASF is building a 10 billion euro factory in China, underscoring a growing trend among German companies to seek growth outside Europe.
The recent sale of energy services provider Techem to US asset manager TPG also reflects the growing influence of foreign acquisitions on the German market.
