Germany‘s economy is expected to contract for the second consecutive year, according to a statement released by the Ministry for Business and Climate Protection. The country’s gross domestic product (GDP) is now projected to shrink by 0.2 percent in 2024, a significant deviation from the government’s earlier forecast of 0.3 percent growth. This follows a contraction of 0.3 percent in 2023.
The Ministry attributed the economic decline to various factors, including structural issues resulting from demographic changes, increased competition, and geo-economic fragmentation. It also highlighted persistently weak domestic and foreign demand, as well as restrictive monetary policies as contributing factors.
Vice Chancellor and Economy Minister Robert Habeck acknowledged that Germany has been facing challenges since 2018 due to both internal structural problems and international issues. He emphasized that these difficulties are hindering economic growth rather than cyclical factors.
Habeck stated that Germany must navigate its position between China and the United States amidst ongoing crises in order to assert itself economically. While he noted that the government has addressed certain internal problems such as energy supply, planning procedures, bureaucracy reduction, and skilled worker shortages, further reforms are necessary to stimulate investment.
The Chamber of Commerce and Industry echoed this sentiment by emphasizing the need for swift implementation of existing measures while calling for additional reforms aimed at promoting investment. Martin Wansleben, Chief Executive of the Chamber of Commerce and Industry expressed concern over what he described as an unprecedented period of economic weakness in Germany.
In addition to these economic challenges, a study conducted by the German Institute for Economic Research revealed rising rental costs in Germany particularly affecting single parents and individuals living alone. The study found a widening gap between low-income groups’ expenditure on rent compared with wealthier households.
The report highlighted significant increases in asking rents over recent decades with low-income households spending more than one-third of their income on rent compared with around one-fifth paid by higher-income groups. Single parents were identified as particularly vulnerable with approximately 30 percent of their income allocated towards rent compared with roughly 20 percent for families with children.
The authors cautioned against implementing rent controls but instead advocated targeted support for low-income renters along with an expansion of social housing initiatives.