18.01.2025 09:40
Recently, Germany, one of the largest countries in Europe that has been facing consecutive economic problems, was shaken by a statement from the IMF. The International Monetary Fund (IMF) has revised its growth forecast for the German economy, lowering it from 0.8% to 0.3% for this year and from 1.4% to 1.1% for next year.
The phrase "the sick man of Europe," used to summarize the situation of the Ottoman Empire in its final period against the united European powers, has come to be used for Germany. The economy in Germany, a heavy industrial country that has been severely hit in the automotive sector, is practically on alert.
The International Monetary Fund (IMF) has once again lowered its growth forecast for Germany, which is struggling with declining exports and structural issues. Updating its World Economic Outlook Report, the IMF expects the global economy to grow by 3.3% this year and next year.
TRUMP POLICIES LISTED AS A RISK
The IMF warned that the expansion of protectionist policies through a new wave of tariffs could increase trade tensions, reduce investments, disrupt global trade operations, and further interrupt supply chains.
The IMF report highlighted "downward risks" stemming from the energy crisis in Europe and the real estate sector in China, stating that the resurgence of inflation is one of the biggest risks for the global economy.
GROWTH FORECAST FOR THE GERMAN ECONOMY LOWERED
The IMF has lowered its growth forecast for the German economy from 0.8% to 0.3% for this year and from 1.4% to 1.1% for next year. Thus, the IMF once again predicted that Germany would have the weakest growth among the G7 countries. While the other major European economies, France and Italy, are also weakening, they are expected to grow by 0.8% and 0.7% respectively this year, significantly above Germany. While the IMF reduced its forecast for Germany by 0.5 percentage points, it raised its forecast for the US by 0.5 percentage points to 2.7% for this year.
GERMAN ECONOMIC INSTITUTES ALSO EXPECT A GROWTH OF 0.3%
On the other hand, the German economy shrank for the second consecutive year due to increasing competition from China and structural issues that have slowed the economy. The seasonally and calendar-adjusted gross domestic product (GDP) in Germany contracted by 0.1% in the last quarter of last year compared to the previous quarter, and is expected to decline by 0.2% for the entire year of 2024 compared to the previous year. Thus, after a 0.3% decline in 2023, the German economy, which is the third largest in the world, is expected to see a contraction in 2024 as well. The German economy last shrank for two consecutive years in the 2002-2003 period.
THE RISK OF TECHNICAL RECESSION IN GERMANY IS GROWING
Meanwhile, if the German economy, which contracted by 0.1% in the last quarter of last year, also contracts in the first quarter of 2025, it will enter a technical recession, defined as two consecutive quarters of contraction. In 2023, due to unusually high inflation affecting purchasing power, high energy prices, declining investments, weak external demand, and high interest rates, Germany's economy contracted by 0.3% compared to the previous year, making it the only country among the G7 to shrink. The companies that form the backbone of Germany, the largest economy in Europe, are struggling to cope with severe macroeconomic headwinds due to rising energy prices and a decline in external demand, which is a particular issue for the export-dependent German economy, while also facing intense competition from Chinese companies.
GERMAN SECTORS ARE TRYING TO COPE WITH DECLINING DEMAND
Important sectors such as automotive, mechanical engineering, and chemical industries, like the construction sector, are also struggling with low demand, while Germany's exports are expected to decline by 0.8% in 2024 compared to the previous year. Private consumption expenditures increased by only 0.3%. High energy costs compared to other countries and excessive bureaucracy are challenging Germany as an industrial nation, while Germans are hesitant to spend their money due to uncertainty. The aging infrastructure in the country also needs to be renewed. The Russia-Ukraine War adds political uncertainties to Germany's economic agenda, extending to budget disputes, while the upcoming early elections on February 23 and the uncertainty regarding future economic policy frameworks are causing many companies to hesitate in making investments.