Federal Minister of Economics Robert Habeck believes that the economic weakness in Germany has bottomed out. “We have reached a bottom, we are leaving the valley and then things will go up again,” said the Green politician on Wednesday in Berlin. However, the federal government is expecting weaker economic development this year. She lowered her economic forecast significantly.
Recovery is delayed
Germany is emerging from the crisis more slowly than expected, said Habeck. The federal government now expects economic output to decline by 0.4 percent in 2023 – a clear contrast to the spring projection, which assumed growth of 0.4 percent. Growth of 1.3 percent is forecast for 2024; in the spring the federal government expected 1.6 percent. Growth of 1.5 percent is assumed for 2025.
Habeck cited several reasons for the “economic difficulties”: the aftermath of the energy price crisis, the European Central Bank’s anti-inflation measures and a weak global economy. The main reason is still the consequences of the Russian war of aggression on Ukraine. Germany was previously heavily dependent on cheap Russian gas, which then failed to materialize.
Overall, geopolitical conflicts put a strain on the economic situation. Germany is particularly feeling the consequences as an export nation. “Weaker foreign trade hits the German economy disproportionately and harder than some other nations,” said Habeck. It is currently not possible to predict what consequences the war will have in Israel.
Relaxation in consumer prices
Despite a significant decline in September, inflation remains high. According to the Federal Statistical Office, consumer prices in September were 4.5 percent higher than in the same month last year. The authority confirmed an initial estimate on Wednesday.
Habeck spoke of a ray of hope. The decline in inflation is significant, which means that real incomes are rising again – which is the basis for a domestic economic recovery. Private consumption is currently still weakening.
After an increase in consumer prices of 6.1 percent for the year as a whole, the federal government expects a significant decline to 2.6 percent next year and 2.0 percent in 2025.
Labor market faces major challenges
Despite the short-term economic weakness, the labor market remains robust, according to the ministry. The demand for work remains at a high level given the shortage of skilled workers and general labor shortages. Due to the weak economy, companies’ willingness to hire has recently decreased somewhat, but this is likely to reverse again with the economic recovery.
Habeck emphasized the impact of demographic change on the labor market and the need to both mobilize domestic labor potential and rely on immigration to meet the need for workers. This fits: The government has agreed to make it easier for people who have fled to Germany to access work.
Structural problems
Growth problems need to be solved, said Habeck. The traffic light inherited many structural problems from the previous government. He mentioned, for example, the excessive bureaucracy or slow approval processes, for example when expanding renewable energies from wind and sun. The government now wants to tackle this, and measures such as the Growth Opportunities Act with tax relief for companies and a package of measures to strengthen struggling housing construction should stimulate the economy.
However, the traffic light is not making any progress on key issues. The SPD, Greens and FDP have been arguing for a long time about relief for companies that complain about electricity prices that are high compared to international standards. Habeck had already presented a concept for a state-subsidized industrial electricity price in the spring – but this is hotly disputed within the coalition. On Wednesday he stuck to it: The chance of an industrial electricity price coming is 50:50.
The general manager of the German Chamber of Commerce and Industry, Martin Wansleben, said: “The mood in the economy is anything but good. There is still no signal for a new beginning.” High energy prices, uncertainty about future energy supplies, high taxes and duties, bureaucracy, a shortage of skilled workers and a sluggish global economy put a strain on business.
Announcement Ministry
