Germany is on the brink of recession, as the new annual economic report shows. Economy Minister Habeck cited current wars and crises as reasons. But there are also positive developments – for example with regard to inflation.
The federal government assumes the economy will grow only minimally this year – 0.2 percent. This value is significantly lower than that assumed in the autumn projection: in October, the federal government assumed a possible GDP growth of 1.3% this year.
Federal Economics Minister Robert Habeck of the Greens sees several reasons for this. “We are emerging from the crisis more slowly than we expected,” said the minister at the presentation of the annual economic report in Berlin. Habeck cited geopolitical changes since the start of the Russian war of aggression in Ukraine, but also inflation, as factors.
It led to high interest rates, which put pressure on companies and their investment activities and, at the same time, resulted in a loss of purchasing power for citizens, which dampened domestic demand. The construction industry is weakening and illness rates were high last year. All of this puts pressure on the forecast.
“In difficult waters”
“The global economic environment is unstable and global trade growth is historically low, which is a challenge for an exporting nation like Germany.” The economy is “in difficult waters”, which is why Habeck wants to move it forward with “strengthening reforms”. “It’s about nothing less than defending the competitiveness of Germany’s industrial location.” Particular emphasis is placed on reducing labor shortages, reducing bureaucracy and improving framework conditions for investments. The Federal Republic suffers from “structural problems that have accumulated over many years”.
“The biggest challenge for Germany is the labor shortage,” explained Habeck. “We need all knowledge and skills, all hands and minds, all talents and abilities.” A major obstacle to investment is bureaucracy, which has become a “torment” for companies, said Habeck.
The first steps in reducing bureaucracy have been taken. “But it can only be a start”, emphasized the vice-chancellor. To facilitate the business activity of companies, all levels are needed – federal, state, local authorities and the EU. It is also important to reinforce investments and better encourage private investments. “To this end, the federal government has proposed the 'Growth Opportunity Act,' which is intended to provide an important initial boost,” Habeck said.
Hoping for slower inflation
But there are reasons for confidence: in the annual economic report, the federal government assumes that inflation will slow to 2.8% this year; In 2023, the inflation rate was 5.9 percent. Inflation has been “tame,” Habeck emphasized.
“The salary increases are noticeable and will be above the inflation rate this year,” he added. “Employees finally have more real money in their wallets again and purchasing power is increasing.” Important signs of hope are also record numbers in employment, as well as the expansion and share of renewable energy.
Given the ongoing dispute within the traffic light coalition, Habeck made sense. Traffic Light “addressed unpopular issues at great speed that had remained unanswered for decades.” However, many government decisions were made with much noise. This should have been quieter. “I accept this criticism,” Habeck said. What is needed now is a “supportive attitude” and concrete next steps.