The leading economic institutes in Germany drastically reduced their expectations regarding economic growth this year. In the joint economic forecast presented on Wednesday, April 10, they provide for an increase in 2025 by only 0.1 percent. The earlier forecast spoke about 0.8 percent. In addition to domestic structural problems, such as a deficiency of qualified workforce and excessive bureaucracy, also the currently huge uncertainty related to US trade policy has an impact on the reduction.
– Geopolitical tensions and protectionist US trade policy worsens the already tense economic situation in Germany – says Torsten Schmidt, head of the boom research department in RWI – Institute of Research on Economics Leibniza. – In addition, German companies are in the face of increased international competition – especially from China. Finally, structural weaknesses, such as a deficiency of qualified workforce and high bureaucratic obstacles, burden economic growth.
Germany. Third year of recession? Weakness, among others by the duties of Donald Trump
According to the forecast of five institutes, the customs policy of US President Donald Trump may also make a recession remain in Germany. It would be the third year in a row of a permanent economic decline.
American duties on the import of aluminum, steel and vehicles will probably reduce GDP growth in this and next year by 0.1 percentage point each time. Additional duties announced on April 2 can double their negative effects. Specific effects, however, are difficult to estimate, because customs rates have never been raised so much in the current globalized economic structure. It is also not clear what effect the 90-day moratorium will have on the duties, announced by Trump and the EU.
Scientists expect a positive impulse on the part of the new Germany's government and an amendment to the Basic Law, to increase investments in defense, climate protection and infrastructure by incurring debt. However, it is not clear how the increased range of government expenditure will be used. Institutes expect that this year no additional defense and investment will be launched. The following year, partly due to the investment package, the Institutes expect economic growth by 1.3 percent.
High structural problems of Germany. In the background, the strong competition of China
“Germans not only suffer from a weak economy, but above all have structural problems” – emphasized economists. “They cannot be solved simply by increasing government expenditure and the more urgent are reforms to increase the potential.” For example, the social system must be adapted to demographic changes, “so that non -wage labor costs do not grow rapidly” – experts suggest.
China's competition meant that part of the industry consuming a lot of energy ceases to exist. The population in working age is shrinking and bureaucracy is a burden. The Institutes Council to improve the situation: safe social security systems in an aging society, more incentives to work and immigration of qualified employees. “Radical reduction of bureaucracy” is also necessary.
The labor market is experiencing turbulence. Unemployment is growing
The situation on the labor market has clearly deteriorated. Since mid -2022, the number of unemployed increased by 20 percent. This means an increase in over 400,000 people. As a result, the unemployment rate increased from 5.0 percent to 6.3 percent. Loss of jobs takes place mainly in the production industry, construction and business services. At the same time, employment in the public sector, education and healthcare is still growing. Institutes expect an increase in unemployment in the coming months. Experts expect that unemployment will not fall again until the economic situation improves in 2026.
Germany saves money
Although people have more money in their pockets again, private consumption increased only slightly last year by 0.3 percent. A lot of money was postponed as part of savings, and the savings rate in 2024 amounted to 11.4 percent. This means that private households did not spend this part of their income, but put off.
Inflation, which for a long time persisted at a high level, fell last year to 2.2 percent. in 2024. Institutes expect that the inflation level will remain at this level this year and will slightly fall next year to 2.1 percent.
(DPA, IFO, STEF)
The article comes from the website Deutsche Welle.