German Economy in Spring 2024: Recovery with Obstacles

The recovery of the German economy takes time. Leading indicators are signaling that GDP will stagnate in the first half of the year. Overall, we now expect GDP to increase by just 0.1 percent in the current year (winter forecast: 0.9 percent). For 2025, we expect a moderate recovery with an increase of by 1.2 percent (winter forecast: 1.2 percent). With the lack of recovery so far, there are increasing signs that the German economy is primarily burdened by structural problems and that the scope for economic expansion is small. Overall, we assume that GDP in 2025 will only be 2 percent above the level of 2019. In view of the weak economic momentum, the labor market is quite robust. Employment is likely to increase again slightly in the current year before turning to a downward trend in the wake of demographic change. The continuing severe shortage of skilled labor will lead to a substantial increase in wages also in response to the high consumer price inflation in the last years. As inflation is falling noticeably, real disposable income will rise again this year for the first time in three years and stimulate private consumption. Exports are likely to fall noticeably again this year before returning to a moderate expansion as global trade gradually picks up again. The weak economic environment will dampen corporate investment. The public financing deficit is likely to fall from 2.1 percent relative to GDP in 2023 to 0.8 percent in 2025, primarily due to the consolidation measures.