The skyscrapers of the Frankfurt skyline in the evening, with the Deutschherrnbrücke in the foreground.
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The German economy contracted by 0.2% in 2024, recording its second consecutive annual downturn, data from statistics office Destatis showed on Wednesday.
The decline was in line with expectations of economists polled by Reuters, according to LSEG data. The European Commission and a group of leading German economic institutes had independently forecast a 0.1% decline in German GDP in 2024.
Ruth Brand, president of the German Statistical Office, said that “economic and structural constraints” were hindering stronger economic development.
“These include increasing competition for the German export industry in important sales markets, high energy costs, persistently high interest rates and uncertain economic prospects,” she said in a statement.
Destatis said both the manufacturing and construction sectors suffered in 2024, while the services sector recorded growth over the period.
The country has long struggled with a housing crisis attributed to higher interest rates and construction costs. Several key industries in Germany, including the automotive sector, have also been under pressure for some time. Automakers are struggling with the shift to electric vehicles and competition from Chinese rivals.
The German stock index DAX was last up 0.47% at 10:24 a.m. London time after the data was published, having already started the day in positive territory.
The German economy had already shrunk by 0.3% in 2023.
Fourth quarter
Destatis also published a preliminary first reading of gross domestic product (GDP) in the fourth quarter on Wednesday based on currently available information. Adjusted for price, seasonal and calendar fluctuations, the economy fell 0.1% in the three months to the end of December compared to the previous quarter. The regular first reading of German GDP for the fourth quarter will be published later this month, Destatis announced.
Robin Winkler, chief German economist at Deutsche Bank, said on Wednesday that while the annual GDP decline should surprise no one, the preliminary numbers for the fourth quarter of 2024 were unexpected and worrying.
“If this is confirmed, it would mean that the German economy would have lost momentum again at the beginning of the winter. The current political uncertainty in Berlin and Washington may have been an important factor,” he said in comments translated by CNBC.
Looking ahead, the German economic institute Ifo warned on Wednesday that the German economy will find it difficult to “break out of stagnation” in 2025 unless economic policy reforms are initiated. In this scenario, the institute expects “noticeable growth” of 0.4% for this period.
“If no countermeasures are taken, the ifo researchers fear that manufacturing companies will continue to shift production and investments abroad,” the institute said in a statement. “Productivity growth would also remain weak as value creation and employment in high-productivity industries would be replaced by value creation in service sectors with low productivity growth.”
If “the right” measures were introduced, investing and working in Germany could still become a more profitable option again and the economy could grow by up to 1%, Ifo added.
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