The stagnation of the German economy is associated with systemic rather than opportunistic problems

The impact of the energy crisis caused by the consequences of the Russian military operation in Ukraine on European industry had virtually exhausted itself by the beginning of 2024, follows from the IMF review. A good example of this is the largest economy in the euro area, Germany. Its slow recovery is increasingly associated not with opportunistic, but with systemic problems, including the aging population and the low level of digitalization of public services. According to forecasts of German research institutes, largely due to these problems, the country’s economy will actually stagnate in 2024: GDP growth is expected to be only 0.1%, and not 1.3%, as previously expected.

Deindustrialization, which was predicted for Europe due to the consequences of the Russian military operation in Ukraine (including due to the rapid rise in energy prices), is not recorded at the beginning of 2024, IMF analysts believe. They argue that the energy crisis no longer has a serious impact on the state of European economies. This is noticeable, for example, when examining in detail what is happening in Germany. As the IMF reminds, the increase in gas prices caused by the country’s refusal of Russian supplies was temporary; its effects, including the acceleration of inflation, also turned out to be short-term (if in the fall of 2022 the figure reached a record 10.4%, then in February 2024 – amounted to 2.5%).

Predictions of a serious drop in industrial production in Germany were also not confirmed: a noticeable decline was recorded only in energy-intensive industries (primarily the chemical industry), whose contribution to GDP is estimated at 4%. At the same time, for example, car production (about 5% of GDP), the IMF notes, in Germany, on the contrary, grew: at the end of the year it increased by 11%. We are talking primarily about electric vehicles – their exports grew by 60% in 2023 (which, however, can also be explained by the low base effect).

The fund’s review of Germany shows that the country’s position as Europe’s slowest-growing economy is occupied not so much by temporary difficulties as by systemic problems. One of them remains the reduction of the working-age population: the wave of migrants, which actually compensated for the shortage of personnel in the last decade, is already drying up. To resolve the issue, the process of obtaining German citizenship in February 2024 was noticeably simplified, however, it is still difficult to assess the impact of this measure on increasing the share of the country’s working-age population. Among other problems of the country, the IMF cites the lag behind other EU countries in terms of the level of digitalization of public services. This, let us explain, especially noticeably increases the administrative burden on business.

It is interesting that such assessments of the state of the German economy are given not only by external, but also by internal observers. Thus, this week the country’s five research institutes (IFO, DIW, IfW, IWH and RWI) lowered their forecast for German GDP growth for 2024 to 0.1% from the previously expected 1.3%. Among the reasons in the joint report, the organizations named mainly the same structural problems as the IMF, clarifying that many of them (primarily related to the burden on business) are related to bureaucratic difficulties.

Some recovery of the German economy, according to analysts, may be recorded in the spring, but this impulse will not be strong. At the end of the year, the country is likely to face stagnation. Growth could accelerate in 2025. However, if the current “economic architecture” is maintained, as stated, it will only reach 1.4%.

Kristina Borovikova