Market News

By Kamil Kowalcze

(Bloomberg) -- Germany’s gross domestic product will shrink slightly this year, new forecasts predicted, the latest in a rash of negative reports that suggest the outlook for Europe’s biggest economy remains dire.

GDP will contract by 0.1% in 2024, Germany’s leading economic research institutes said Thursday in their twice-yearly outlook, which the government references when compiling its own forecasts. In March, they expected expansion of 0.1%.

“In addition to the economic downturn, the German economy is also being weighed down by structural change,” Geraldine Dany-Knedlik, head of forecasting and economic policy at the Berlin-based DIW, said in an emailed statement.

Concerns have been mounting in recent weeks about Germany’s apparent economic decline, with the key auto sector especially hard hit. The weakness of its largest economy is weighing on the wider euro area, with a recovery earlier in the year in the 20-nation bloc fizzling out.

The Bundesbank has warned that Germany may already be in recession, with another contraction in the third quarter possible after a 0.1% decline in the second.

“Decarbonization, digitalization, and demographic change — alongside stronger competition with companies from China — have triggered structural adjustment processes that are dampening the long-term growth prospects of the German economy,” Dany-Knedlik said.

Next year, German growth is set to accelerate to 0.8%, the institutes predicted, a weaker performance than the 1.4% projected in their spring forecasts.

Additional points from the report:

• A slow recovery is likely to set in next year, but growth will not return to its pre-pandemic trend for the foreseeable future
• The effects of structural change and the economic downturn are particularly evident in the manufacturing sector, predominantly capital goods manufacturers and energy-intensive industries
• Industry is also struggling with the weakening of the global manufacturing sector and a lack of new orders
• Persistently high interest rates and economic and geopolitical uncertainty are likely to have weighed heavily on the investment activities of companies and consumer spending
• A tentative recovery is being supported by a revival in private consumption, which will be underpinned by strong growth in real disposable incomes
• Inflation in Germany is expected to remain close to the European Central Bank’s target of 2% through 2026

The five German institutes which compile the forecasts are the DIW, Munich-Based Ifo, the IfW in Kiel, the IWH in Halle and the Essen-based RWI. The Wifo and the IHS institutes in Vienna also contribute.

The German government is expected to publish updated economic projections next month.

--With assistance from Jessica Loudis.