BERLIN (AP) — Germany’s economy shrank for a second straight year in 2024 as worried consumers held back spending and Chinese competition hit the country’s traditional exports of cars and industrial machinery.
This year’s weak performance underlines Germany’s status as Europe’s worst-performing major economy and shows that the country has failed to experience meaningful growth over the past four years as it has struggled to cope with major shifts in the global economy .
Gross domestic product shrank 0.2% last year, after falling 0.3% in 2023, according to preliminary official figures released on Wednesday, weeks before an election in which the economy is the main issue.
The economy is now only 0.3% larger than in 2019, the year before the COVID-19 pandemic.
Germany’s business community has been battered by external shocks and homegrown problems, sparking an anxious 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 revive the economy. That cleared the way for early elections on February 23.
Candidates to lead the next government have made conflicting proposals on how to inject new vigor into the economy.
Ruth Brand, head of the statistics agency, has 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 who worry about the future and save their wages instead of spending them.
Spending on hotels and restaurants fell by 4.4% and spending on clothing and shoes fell by 2.8%, despite rising disposable income.
Added to this is increasing competition for export markets from China in traditional areas of German strength, such as cars, industrial machinery and chemicals.
Other more chronic problems include excessive bureaucracy and a shortage of skilled workers.
“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.”
“The German economy is in stagnation,” says Nils Jannsen of the Kiel Institute for the World Economy. And growth prospects for the coming year are “bleak,” he said, with the “sword of Damocles” hanging over the export-oriented economy due to possible new U.S. trade measures such as higher tariffs on imported goods from President Trump’s incoming administration. elect Donald Trump, who takes office on Monday.