In economic terms, Germany is lagging behind other developed economies. Why? What mistakes did the country make and what needs to change?
Economic experts in Germany are not optimistic about 2025. This is according to the forecasts of several institutes in the country, summarized by the German public television ARD. The German Institute for Economic Research expects economic growth next year to be only 0.2%. The "Ifo" Institute (Institute for Economic Research at the University of Munich) and the "Leibniz" Institute in Halle predict growth of 0.4%. The Institute for World Economy in Kiel, on the other hand, expects stagnation. It is expected that the German economy will only start to recover in 2026 with a more serious growth of 0.8% to 1.2%.
More and more companies are planning layoffs
2024 will be marked by an economic downturn - the contraction of GDP in Germany is expected to be between 0.1% and 0.2%. However, the current crisis is not a new phenomenon - the largest economy in Europe has been facing serious problems for years. Since the third quarter of 2021, Germany has been experiencing either minimal growth or economic contraction.
So far, the German labor market has managed to withstand the economic problems - unemployment in the country is between 5.8% and 6.1%. However, this may change. According to a study by the Institute for German Economics, four out of ten German companies plan to cut jobs next year. Economists from "Ifo" also expect an increase in unemployment.
Germany lags behind other leading economies
Germany is in a difficult situation compared to other Eurozone countries, where the economy grew by an average of 0.9% in the third quarter of 2024, compared to 0.1% growth in the Federal Republic. This gap is expected to persist in 2025. According to the Organization for Economic Cooperation and Development (OECD), next year Germany's economy will grow the slowest of all 38 OECD member countries.
German industry, which was the country's greatest strength for many years, is becoming its weakness. According to experts, the manufacturing sector suffers from structural problems such as staff shortages, high costs and bureaucratic obstacles. Electricity and gas prices remain above pre-crisis levels, and many sectors cannot fill their shortage of qualified labor. All this has led to a "serious loss of competitiveness, especially in non-European markets", summarizes the "Ifo". The increasing protectionism and geopolitical tensions are also affecting the German economy, which is oriented towards exports. "The German economic model simply seems to be out of fashion", say experts from the German bank "Helaba", quoted by ARD.
Merkel did not carry out key reforms
How did it get to this point? According to the British publication "The Economist", Angela Merkel's government bears serious responsibility for the state of the German economy. The unimplemented reforms during the 16 years in which she was at the helm of the country have once again turned Germany into the "sick man of Europe". In 2009, Germany introduced into its constitution the so-called "debt brake", which limits the possibility of the budget running a deficit. This has led to a chronic lack of investment in public services. But the British publication is not the only one of this opinion. Many economists in Germany also believe that the debt brake is a major obstacle to investment and growth. According to them, this is also one of the reasons for the poor infrastructure in the country.
Is there a way out? To get back on track, Germany must focus its efforts on reducing the tax burden on businesses, limiting bureaucracy and energy costs, expanding digital, energy and transport infrastructure and attracting additional labor - returning older citizens to their professions, motivating more women to work, as well as facilitating access to the labor market for foreign workers. If steps are taken in this direction, the economy could grow by 1.1% next year, or almost three times more than forecast.