German economy expected to grow only 0.1 percent this year

BERLIN

The German economy is expected to barely grow this year, leading economic institutes said Wednesday, as weak demand at home and abroad slows the path to recovery.

Europe's largest economy will expand by just 0.1 percent in 2024, five think-tanks said in a joint statement, a sharp downgrade from their earlier forecast of 1.3 percent growth.

"Cyclical and structural factors are overlapping in the sluggish overall economic development," said Stefan Kooths from the Kiel Institute for the World Economy (IfW Kiel).

"Although a recovery is likely to set in from the spring, the overall momentum will not be too strong," he added.

The German economy shrank by 0.3 percent last year, battered by inflation, high interest rates and cooling exports, and is struggling to emerge from the doldrums.

Even though inflation has steadily dropped in recent months, consumer spending was picking up "later and less dynamically" than previously forecast as wages lag behind, the institutes (DIW, Ifo, IfW Kiel, IWH and RWI) said.

And Germany's export sector, usually a key driver of economic growth, was suffering from cooling foreign trade against a fragile global economic backdrop.

Energy-intensive businesses in particular have been hit hard by soaring energy prices following Russia's war in Ukraine, contributing to a manufacturing slump in Europe's industrial powerhouse.

The government recently also drastically downgraded its own economic forecasts, expecting output to expand by just 0.2 percent this year.

Looking ahead, the institutes expect the recovery to quicken next year as inflation eases further and demand picks up.

They now expect the economy to grow by 1.4 percent in 2025, only slightly below their previous forecast of 1.5 percent.