- By Jessica Parker and Damien McGuinness
- ` News, Berlin
40 minutes ago
image description,
Robert Habeck previously warned of a “dramatically bad” economic situation in Germany.
The German economy is in “difficult waters,” said the country’s economics minister.
Robert Habeck said the federal government's forecast for economic growth in 2024 had been revised downwards from 1.3% to 0.2%.
This means that Europe's largest economy has effectively stalled – despite avoiding entering a full-blown recession.
Mr Habeck had previously described Germany's economic situation as “dramatically bad”.
Today he said Germany faces a “very special situation” following Putin's full invasion of Ukraine because its energy-intensive industries are dependent on Russian gas.
Germany's dependence on exports makes it particularly vulnerable to changes in global trade patterns, he said, and the broader structural problem for the German economy is the lack of labor. Without migrant workers, the German economy would collapse, said Habeck.
After Russia's full invasion of Ukraine two years ago, energy costs skyrocketed. This triggered inflation, causing households to feel squeezed.
In fact, the country may have already slipped into recession, according to a warning from the Bundesbank.
The German economy contracted slightly in 2023, shrinking by 0.3% in the fourth quarter of the year.
The Bundesbank said in its monthly report that “stress factors” are expected to remain and economic output could therefore “decline slightly again in the first quarter of 2024”.
Two negative quarters in a row would plunge Germany into a so-called technical recession.
Since the German economy is expected to grow slightly in 2024, economists are not talking about a full-blown recession.
With inflation rates now falling, unemployment remaining low and energy costs falling, economists expect the economy to gradually recover this year. Despite dire predictions, Germany managed to successfully break away from Russian gas without the lights going out. After years of stagnation, wages are rising in many industries, which should boost consumer demand.
But companies are pessimistic.
image description,
André Kasimir owns a construction company and says the government doesn't help companies like his
Germany is on the way to becoming the “sick man of Europe,” claims André Kasimir, owner of the construction company Kasimir Bauunternehmung.
According to industry experts, high interest rates, a shortage of skilled workers and the country's famous bureaucracy have plunged the industry into crisis. In 2023, bankruptcies in the construction sector increased by more than 20%.
Bosses say building new homes has become “virtually impossible” despite a severe housing shortage in cities like Berlin.
Construction projects take far too long to be approved, and Mr. Kasimir also believes that heating and noise protection regulations are too expensive.
“The government has no idea what to do to make it easier for us to build and live,” he said.
Business leaders say many of the country's economic problems are caused by political infighting. Politicians argue about the government's new law to stimulate the economy. Mr. Habeck has presented a draft law that is intended to reduce bureaucracy and provide German companies with tax relief worth billions.
The law was passed in the Bundestag, but is being blocked by opposition conservatives in the upper house.
The dispute within Chancellor Olaf Scholz's argumentative three-party coalition has also angered voters, so that the government's poll numbers are at a record low. Original plans to paper over political differences through generous spending were dashed when the Constitutional Court declared the state budget unlawful.
image description,
Student Elmedina says she is “not that happy” with what Germany currently has to offer
Government leaders have different views on what the solution is. Economics Minister Robert Habeck's Greens want to change the debt rules in the constitution to enable more spending on infrastructure. The Liberals, who run the Treasury, view low debt as sacrosanct and are pushing for tough austerity measures.
The obvious divisions within the coalition are causing great “uncertainty,” says Professor Stefan Kooths from the Kiel Institute for the World Economy.
The deep dissatisfaction with the political class is not hard to feel on the streets of the German capital.
“We have fallen asleep a bit, especially under Angela Merkel’s government,” says Cathrin from Berlin. “That’s why I think we have to catch up with the big economies like China.”
Architecture student Elmedina comes from Kosovo, but dismayed by the lack of good job opportunities, she wonders whether her future actually lies in Germany.
“I had the idea that I could have a better life… but I'm not that happy with what Germany has to offer at the moment.”
Comments are closed.