Market Analysis

IW Forecasts Stagnation for German Economy in 2024

Amos Simanungkalit · 08 May 20241.7K Views

In 2024, Germany's economy is projected to stall despite a more robust beginning to the year, trailing behind its European counterparts, as outlined by the German economic institute IW.

The manufacturing and construction sectors, in particular, are entrenched in a recessionary phase, as per IW's latest projections, reported exclusively by Reuters and set for publication later today.

Consumer spending stands out as a bright spot, expected to increase as inflation subsides.

However, this uptick in consumption alone isn't adequate to spur a significant economic upturn. According to IW economist Michael Groemling, there's a pressing need for investments to gain momentum. He highlighted substantial gaps in investment, attributing the sluggishness to the geopolitical climate and elevated interest rates, which render financing more costly.

Germany's economy contracted by 0.2% last year, marking the weakest performance among major euro zone economies. Factors such as soaring energy costs, subdued global demand, and historically high interest rates contributed to this downturn.

For 2024, IW anticipates zero growth for Europe's largest economy, once again trailing behind France, Italy, Britain, and the United States, all expected to experience expansion.

While Germany narrowly avoided recession at the outset of the year, posting a 0.2% growth in the first quarter compared to the previous three months, the economy had contracted by 0.5% in the final quarter of 2023.

The German government's GDP growth forecast for the year stands at 0.3%.

Groemling emphasized the necessity for policy interventions that enhance business conditions, warning of continued underperformance if the current trajectory persists.

According to IW's projections, foreign trade is expected to remain lackluster, providing minimal economic stimulus throughout the year.

Moreover, Germany's unemployment rate is projected to rise to 6% on average for the year, up from 5.7% in 2023. Groemling underscored the visible impact of economic weakness on the German labor market despite a record number of 46 million people employed on average in 2024.