Germany Faces Continued Economic Stagnation, Says Central Bank

The latest monthly report from Bundesbank indicates that the Eurozone's largest economy is expected to experience further decline. Read Full Article at RT.com.

Germany Faces Continued Economic Stagnation, Says Central Bank
Germany's central bank has significantly downgraded its growth forecast for the EU’s largest economy, indicating a contraction this year and minimal growth in 2025, as structural issues deepen.

In its latest monthly report, released on Friday, the Bundesbank projected that GDP will decline by 0.2% this year, reflecting a notable reduction from an earlier estimate of a 0.3% expansion. This downturn is attributed to ongoing weakness in the industrial sector, which is now largely viewed as a structural issue. This deterioration is straining export activities and investments.

The labor market is also feeling the impact, leading to a slowdown in private consumption, according to the report. The Bundesbank stated, “Against this backdrop, the German economy is set to stagnate in the winter half-year 2024-25 and only begins to make a slow recovery over the course of 2025.”

Looking ahead, output is anticipated to grow by just 0.2% next year, down from a previously expected 1.1%. The forecasts for 2026 and 2027 are for growth rates of 0.8% and 0.9%, respectively.

Bundesbank President Joachim Nagel emphasized that “the German economy is struggling not just with persistent cyclical headwinds but also with structural problems.” He pointed out the uncertainty stemming from geopolitical conflicts, the effects of structural changes, and the direction of future fiscal and economic policy following the Bundestag elections in February. Nagel warned, “All in all, the prevailing risks at present are of even weaker economic growth and higher inflation.”

The report also suggested that domestic industrial firms should prepare for the long-term impacts of the energy price crisis linked to the Ukraine conflict, alongside the demands of the green transition and the challenges posed by demographic shifts.

Additionally, the Bundesbank cautioned that a possible trade war with the US could push the German economy into recession. If President-elect Donald Trump implements his proposed blanket tariffs on all US imports, it could reduce German GDP by between 0.2 and 0.6 percentage points next year.

In recent years, Germany's economy has lagged behind its counterparts, primarily due to an extended downturn in manufacturing. Notably, Germany was the only country in the Group of Seven to experience economic contraction in 2023.

Emily Johnson for TROIB News