Germany's economy is likely to recover this year after a period of weakness, but it still faces major headwinds, an influential expert group said on Wednesday.
The government's Economic Advisory Council's assessment is in line with other recent forecasts that predict Europe's top economy is slowly getting back on its feet.
Production contracted slightly last year due to higher inflation, a slowdown in key manufacturing and weak demand from key trading partners, particularly China.
Despite continuing challenges, experts expect “the German economy to gain some momentum during 2024,” council member Martin Werding said in the group's latest report. .
The economic recovery is expected to be driven by an increase in overseas shipments due to a recovery in international trade, as well as improved consumer demand due to rising wages.
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Nevertheless, experts predict that gross domestic product (GDP) will only increase by a modest 0.2% this year, and by 0.9% in 2025.
This is broadly in line with other recent forecasts, with the government forecasting growth of 0.3% in 2024.
Most economic indicators, from factory output to business confidence surveys, have been rising in recent months.
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But Germany's economic expansion will be slower than that of the 20-nation eurozone, which is expected to expand by 0.8% in 2024.
Germany's “export-oriented companies face intense competition, rising labor costs and continually rising energy prices,” said council member Veronica Grimm.
Experts expect the European Central Bank to cut euro zone interest rates in the summer following a violent rate hike cycle, but the positive effects are unlikely to be felt until next year.
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Experts also warned that the high level of uncertainty surrounding future economic policy is also a concern.
The 2025 budget proposal is being hotly debated within the three-party ruling coalition led by Prime Minister Olaf Scholz, with reports saying there are sharp differences of opinion over potential cuts.
The uncertainty comes at a time when the country needs major new investments to overhaul its aging infrastructure and drive the transition to a greener economy, officials said. .
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