Germany's Economy Faces Prolonged Downturn: A Three-Year Recession on the Horizon?

Germany's economy contracted for a second consecutive year in 2024, shrinking by 0.2%. Structural and cyclical challenges, high energy costs, and competition, especially from China, contributed to the downturn. Analysts predict a continued contraction into 2025, signaling a possible third year of recession.

For the second year running, Germany's economy has contracted, underscoring the severity of the recession afflicting Europe's largest economic powerhouse. Latest figures indicate a 0.2% contraction in 2024, with the last quarter alone shrinking by 0.1%, according to the Federal Statistics Office.

At a press briefing, office president Ruth Brand highlighted the combined impact of cyclical and structural challenges, inflated energy costs, high-interest rates, and fierce foreign competition as primary factors stalling Germany's economic progression. Brand noted, "Increasing global competition, notably from China, and domestic challenges have taken a toll."

As Germany's export-focused economy grapples with declining international demand, notably waning by 0.8% in 2024, economists foresee grim prospects with potential trade tensions looming from the U.S. under new leadership. LBBW's Jens-Oliver Niklasch warned, "Strong signs suggest recession may extend into 2025." Commerzbank's Joerg Kraemer indicated a potential short-lived recovery sparked by reduced interest rates and improved household incomes, yet tempered by persistent high energy expenses.

(With inputs from agencies.)