Bleak outlook for the German economy – government lowers forecast
Published: Wednesday, Feb 21st 2024, 17:30
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Germany is in a growth crisis - and the outlook for the economy is bleak. The German economy is in "rough waters", said Economics Minister Robert Habeck in Berlin on Wednesday.
"We are emerging from the crisis more slowly than hoped." Habeck presented the annual economic report. The government expects only a mini-growth of 0.2 percent this year. In the fall forecast, it was still expecting growth of 1.3 percent. The government is also warning of meagre growth prospects for the coming years.
Economy in a difficult situation Last year, Europe's largest economy slipped into recession. Habeck said that two years after the start of the Russian attack on Ukraine, the war continues to weigh on the German economy - also because of the country's former heavy dependence on Russian energy supplies.
Other reasons for the weak growth: the strong German export economy is being hampered by a weak global economy. The rise in interest rates has also led to fewer investments, which is having a particularly negative impact on construction. Habeck also cited an above-average sickness rate - and the federal government's need to make savings as a result of a budget ruling by the Federal Constitutional Court.
Inflation weakens
Nevertheless, there is some good news. Inflation has been tamed, according to Habeck. The rise in consumer prices is likely to fall to 2.8 percent this year. In recent years, inflation has eaten up wage increases. This year, however, wage increases are above the inflation rate.
The expectation is that employees will also spend the money and thus boost private consumption. However, Habeck also pointed to uncertainties among the population about how the economy will develop - and how high the next gas or electricity bill will actually be.
Germany less competitive
Business associations complain that Germany's companies are becoming less and less competitive internationally - due to a high tax burden in international comparison or high energy costs.
Habeck spoke of problems that had accumulated over many years. Specifically, these include a partially dilapidated transport infrastructure, shortcomings in digitalization, for example in the administration, excessive bureaucracy, problems in the education system - and the increasing ageing of society.
"The biggest structural problem is the shortage of skilled workers and labor," said Habeck. "There is a shortage everywhere." Officially, 700,000 vacancies are reported in Germany, but the number of unreported cases is far higher.
The shortage of skilled workers is also one of the reasons why the government is warning of low economic growth for the foreseeable future. Annual "potential growth" of just 0.5 percent on average is expected for the years up to 2028. However, with a view to prosperity, Germany cannot afford any continued weak growth.
Habeck will "Reformbooster"
Habeck made it clear that a new direction was therefore needed. The minister wants a "reform booster": "We need to do more."
A small package A Growth Opportunities Act, which provides for tax relief for companies among other things, has already been passed in the Bundestag. However, the Bundesrat has blocked the law due to the loss of revenue for the federal states. In the conciliation procedure, the volume of the tax relief has already been reduced from the planned seven billion euros per year to 3.2 billion euros.
But even if the Growth Opportunities Act is passed, it is unlikely to be enough to really boost growth. Habeck has already proposed a debt-financed special fund with a much higher volume than in the Growth Opportunities Act, for example for tax credits - but the FDP rejects more debt.
©Keystone/SDA
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