Germany's Economy Expected to Contract for Second Consecutive Year

Germany Economic Growth Forecast
This Year 0.1% → -0.1%
Next Year 1.4% → 0.8%

View of the Volkswagen factory located in Germany.
Photo by Reuters Yonhap News

This year, the German economy is expected by academia to contract for the second consecutive year following last year. After recording a contraction in 2020, the economy grew from 2021 to 2022 but fell back into recession starting last year.

Five think tanks, including the German Institute for Economic Research (DIW), the Kiel Institute for the World Economy (IFW), and the Halle Institute for Economic Research (IWH), jointly announced on the 26th (local time) that they have revised down Germany's economic growth forecast for this year from 0.1% to -0.1%. The forecast for next year was also lowered from 1.4% to 0.8%.

In July, the German government announced a draft budget for next year, stating that the economic growth rate would reach 0.5% through a stimulus program. This program includes plans for the government to support the economy with 110 billion euros (approximately 161 trillion won) over two years until next year.

However, the think tanks argued that this stimulus program would not have a significant effect. Oliver Holtem?ller, Deputy Director of IWH, said, "The problem with the German economy is very fundamental compared to the size of the growth budget."

The German government will revise its economic outlook early next month based on analyses from private research institutes. The government's current economic growth forecasts are 0.3% for this year and 1.0% for next year.

The Organisation for Economic Co-operation and Development (OECD) also downgraded Germany's economic growth forecast on the 25th, lowering this year's estimate from 0.2% to 0.1% and next year's from 1.1% to 1.0%. The forecast for next year is the lowest among the Group of Twenty (G20) countries.

Meanwhile, the German economy contracted by -3.8% in 2020 compared to the previous year, immediately after the COVID-19 pandemic. It showed a recovery trend from 2021 to 2022 but returned to negative growth last year. As a result, Germany's economy grew by only 0.7% last year compared to 2019, before the spread of COVID-19.