The German economy faced a second consecutive year of contraction in 2024, as the eurozone continued to grapple with global challenges alongside domestic political and structural issues. According to Destatis, the Gross Domestic Product (GDP) declined by 0.2% in 2024, following a 0.3% reduction in 2023, as reported on Wednesday.
During a press conference in Berlin, Destatis President Ruth Brand emphasized the challenges impeding economic progress in 2024, citing increased competition facing the German export sector in crucial markets, persistently high energy costs, elevated interest rates, and an uncertain economic climate. Consequently, the German economy experienced further contraction in 2024.
The manufacturing sector was notably impacted, experiencing a 3.0% contraction due to significant downturns within the machinery, equipment, and automotive industries. The construction sector reported an even sharper decline of 3.8%. Conversely, the service sector saw a modest expansion of 0.8%.
On the expenditure front, gross fixed capital formation decreased by 2.8%, largely due to reductions in construction, machinery, and equipment investments. Household consumption expenditure rose by 0.3%, supported by wage increases and easing inflation, while government spending climbed 2.6% as a result of higher social benefits provided by the government.
The tough economic conditions were also mirrored in foreign trade figures, with exports falling by 0.8% and imports increasing by 0.2%.
In terms of the labor market, Destatis reported an increase in employment of 72,000 from the previous year, reaching a record high of 46.1 million, with these employment gains being solely driven by the service sector.
The data indicated that the general government deficit ratio remained steady at 2.6% of GDP in 2024, staying below the European Stability and Growth Pact's 3% reference threshold.
Franziska Palmas, an economist at Capital Economics, interpreted the data as an indication of ongoing economic stagnation, with no clear signs of improvement. Although potential boosts in real household incomes and declining interest rates might support consumption and construction investment, these positive effects are likely to be offset by persistent high energy prices, sluggish demand for industrial goods, and unfavorable demographic trends, according to Palmas. The firm predicts only a marginal cyclical recovery in 2025, which may still prove overly optimistic.
The material has been provided by InstaForex Company -
www.instaforex.com
