Germany Is Giving Up Hope of Achieving Any Growth in 2024
Germany’s government is poised to cut its prediction for Europe’s biggest economy and now expects no expansion at all this year, according to people familiar with the matter.
Officials in Berlin are set to lower their forecast for growth in 2024 to — at best — stagnation, down from 0.3% previously projected, said the people, who declined to be identified because the predictions remain confidential for now.
Such an outcome would mean yet another lost year for an economy that has been weighed down by the weakness of its industrial sector amid Russia’s shutdown in gas supply after the invasion of Ukraine, as well as feeble Chinese demand and its struggle to pivot to electric vehicle production.
A string of bad news — from Volkswagen AG’s threat to close factories in Germany to Intel Corp’s decision to postpone a €30 billion ($33.5 billion) investment decision for a new chip plant in the country’s east — underlines the additional headwinds bearing down on the economy.
Add in the risk of Donald Trump returning to the White House and Germany is heading toward a perfect storm which could depress GDP even further, one of the people said.
“The fact is that things are looking pretty dicey for Germany,” Bloomberg Economics’s Jamie Rush told Bloomberg TV on Monday. “We are going to see persistent weakness in the German economy and as time has worn on it is looking more structural than cyclical. Germany has long-term problems that need to be dealt with in terms of its competiveness.”
German bonds held losses after the report. The two-year yield traded three basis points higher on the day at 2.1%, near the lowest level since 2022. The notes have rallied sharply over the past week as the market prepares for the European Central Bank to cut interest rates again in October.
A spokeswoman for the Economy Ministry declined to comment, saying that Economy Minister Robert Habeck would present the government’s updated forecast soon in Berlin.
The prospect of no growth is an effective admission of failure by the coalition government and another blow to the record of Chancellor Olaf Scholz, who hasn’t seen the economy expand for two consecutive quarters since taking office in December 2021.
With an election now less than a year away, it also narrows the window perilously for him to achieve any meaningful pickup before going to voters, whose discontent has already made itself known this year in ballots for the European Parliament and in eastern states.
Listen to the Here’s Why podcast on Apple, Spotify or anywhere you listen.
Traders now see a roughly 80% chance of a quarter-point reduction next month, swiftly following a similar move in September, as signs keep mounting that the euro-area economy is slowing.
The government’s final estimate for 2024 might come in even weaker than zero growth for Germany depending on industrial orders and output data due shortly before the release of its updated forecast for gross domestic product on Oct. 9, the people said.
Economy ministry officials are currently working on the new projection, which could still change before its final release. A stagnation, if that can be achieved, would still exceed the projection for a 0.1% contraction from the nation’s leading economic institutes in the past week.
Weaker growth prospects would dent tax revenues which could further complicate efforts in Scholz’s ruling coalition to close a budget gap in the 2025 finance plan. However, it would also allow more net new borrowing — roughly an additional €2 billion — under a rule that allows the government to take on more debt in difficult economic times, the people said.