Germany is at risk of entering a phase of long-term economic weakness. This emerges from the German federal government's latest annual economic report, which will be presented today, Wednesday. This report, a central document of economic policy principles, is attracting more attention this year than it has in a long time. The reason: the federal government expects the German economy to grow just 0.5% per year in the medium term. The reasons for economic collapse are demographic changes, neglected location factors and geopolitical risks.
Growth potential revised downwards
A mini-boom is expected this year: in 2024, the German economy is expected to grow by just 0.2 percent, according to the report. Previously, significantly stronger economic growth of 1.3% was expected in Germany; in 2025, the increase is expected to be just 1%, according to the forecast.
Finance Minister Christian Lindner (FDP), Vice Chancellor and Federal Minister for Economic Affairs and Climate Protection Robert Habeck (Alliance 90 / The Greens) and Federal Chancellor Olaf Scholz (SPD) in the plenary of the German Bundestag © IMAGO / Achille Abboud
This does not leave the Austrian economy indifferent either. “When Germany suffers, Austria has always suffered in the past,” Wifo economist Marcus Scheiblecker tells Kleine Zeitung. “It doesn’t look good.” Because the economy is not yet recovering in Austria either. It can be said that the first quarter of 2024 is worse than expected. “Overall, stressors have increased and we are also making cuts,” says Scheiblecker.
Wifo economist Marcus Scheiblecker: “When Germany suffers, in the past Austria has always suffered too” © Wifo
Economy Minister Robert Habeck (Greens) called the slow growth “dramatically bad”, while Finance Minister Christian Lindner (FDP) considered it “embarrassing”, reports the German “Handelsblatt”. And he quotes the head of ifo, Clemens Fuest, who expects few improvements in the medium term, which can be seen in the significant reduction in growth potential: “Investments are developing so poorly that the growth potential has to be reviewed low”.
“Radical growth agenda”
The report suggests measures to boost sluggish growth. Companies in Germany should be burdened with less taxes, which is what both Economy Minister Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) want. Of course, there are disagreements about how the tax burden should be reduced – Habeck wants, for example, targeted financing for companies on the path to climate neutrality, Lindner reduces bureaucracy and reduces taxes without new debt. There is talk of a “radical growth agenda for Germany”, of reforms and a change of direction that responds to current challenges.