Germany is on the brink of recession, as the new annual economic report shows. Economics Minister Habeck cited current wars and crises as reasons. But there are also positive developments – for example when it comes to inflation.
The federal government assumes that the economy will only grow minimally this year – by 0.2 percent. This is significantly less than assumed in the autumn projection: In October, the federal government assumed possible GDP growth of 1.3 percent this year.
Federal Economics Minister Robert Habeck from the Greens sees several reasons for this. “We are emerging from the crisis more slowly than hoped,” said the minister at the presentation of the annual economic report in Berlin. Habeck cited the geopolitical changes since the outbreak of the Russian war of aggression in Ukraine, but also inflation, as factors.
It led to high interest rates, which put a strain on companies and their investment activities and at the same time resulted in a loss of purchasing power for citizens, which dampened domestic demand. The construction industry is weakening and sickness rates were high last year. All of this puts pressure on the forecast.
“In difficult waters”
“The global economic environment is unstable and global trade growth is historically low, which is a challenge for an export nation like Germany.” The economy is “in difficult waters,” which is why Habeck wants to move it forward with a “reform booster.” “It’s about nothing less than defending the competitiveness of the German industrial location.” The focus is particularly on curbing the labor shortage, reducing bureaucracy and improving the framework conditions for investments. The Federal Republic is suffering from “structural problems that have built up over many years”.
“The biggest challenge for Germany is the labor shortage,” explained Habeck. “We need all knowledge and skills, all hands and minds, all talents and abilities.” A major obstacle to investment is bureaucracy, which has become “torment” for companies, said Habeck.
The first steps in reducing bureaucracy have been taken. “But it can only be a beginning,” emphasized the Vice Chancellor. In order to make it easier for companies to do business, all levels are needed – federal, state, local authorities and the EU. It is also important to strengthen investments and better incentivize private investments. “To this end, the federal government has proposed the ‘Growth Opportunities Act’, which is intended to provide initial important impetus,” said Habeck.
Hoping for slower inflation
But there is reason for confidence: in the annual economic report, the federal government assumes that inflation will slow to 2.8 percent this year; In 2023, the inflation rate was 5.9 percent. Inflation has been “tamed,” emphasized Habeck.
“The wage increases are noticeable and will be above the inflation rate this year,” he added. “Employees finally have more real money in their wallets again and purchasing power is increasing.” Important signs of hope are also record numbers in employment as well as in the expansion and share of renewable energies.
In view of the ongoing dispute within the traffic light coalition, Habeck made sense. The traffic light “took on unpopular issues at great speed that had remained unanswered for decades.” However, many government decisions were made with a lot of noise. This should have been quieter. “I accept this criticism,” said Habeck. What is now needed is an “attitude of underhook” and the concrete next steps.