"Growth Rate This Year -0.2%" German Government Also Lowers Forecast... Negative for 2 Consecutive Years

The German government, the largest economy in the Eurozone, has lowered its economic growth forecast for this year, anticipating negative growth for the second consecutive year.

Robert Habeck, Germany's Vice Chancellor and Federal Minister for Economic Affairs and Climate Action, announced at a press conference on the 9th (local time) that the forecast for this year's Gross Domestic Product (GDP) growth rate has been revised down from 0.3% to -0.2%. As a result, Germany is expected to record negative growth for two consecutive years for the first time since 2002-2003. The government's projected growth rate of -0.2% is also below the recently revised forecast of -0.1% jointly presented by German think tanks.

Minister Habeck said, "The current situation is unsatisfactory," adding, "Half of Germany's growth comes from exports, but this pillar is under attack."

[Image source=Reuters Yonhap News]

So far, the German economy has faced difficulties due to high inflation, high interest rates, and soaring energy prices caused by Russia's invasion of Ukraine. In particular, Germany, which is highly dependent on Russian gas, is considered to have suffered a greater impact compared to other European countries. As a result, industries with high energy consumption have also experienced sluggishness.

The government had expected the economy to improve this year as energy prices stabilized, but recent economic indicators suggest otherwise. Consumer demand remains stagnant, and companies are postponing investments due to geopolitical uncertainties stemming from the Middle East. Politically, the coalition government led by Chancellor Olaf Scholz is losing strength, with far-right and far-left populist parties gaining ground in major elections.

In particular, some companies are considering relocating parts of their production facilities overseas due to high labor costs, energy expenses, tax burdens, and political turmoil, raising concerns about industrial decline. Last month, news emerged that Volkswagen, one of Germany's leading automobile brands, is considering closing factories within Germany, heightening these concerns. Semiconductor company Intel also halted plans to build a 30 billion euro factory in Germany.

Minister Habeck pointed out that "not only cyclical factors but structural factors are making the economic situation much more difficult," highlighting the long-standing issues of a shortage of skilled labor accumulated over years and insufficient infrastructure investment. He acknowledged that "political debates in Germany and Europe are not providing clear guidance to businesses and consumers," and that conflicts between the government and the European Union (EU) over fiscal deficits are not helping growth. Due to EU regulations limiting member states' fiscal deficits, the German government is unable to implement large-scale stimulus measures to boost growth.

However, the German government expects the economic growth rate to turn positive at 1.1% next year. Supported by the government's 'Growth Initiative,' which includes 40 measures such as tax cuts for companies, private consumption and investment are expected to recover. The growth rate for 2026 is projected at 1.6%.