The Economic Challenges of Germany: Resilience, Recovery, and Structural Reforms

2024-01-19 14:26:08

The euro zone’s largest economy has recently been described by many observers as “the sick man of Europe”, echoing an expression used in the late 1990s following the backlash to reunification.

Its gross domestic product (GDP) of Europe’s largest economy fell by 0.3% in 2023, following an increase of 1.8% in 2022, according to official data corrected for price variables.

“I know some people think Germany is a sick man,” said Lindner, speaking on a panel at the World Economic Forum meeting, which ends Friday in Davos. “Germany is not a sick man,” he continued. “Germany, following a very successful period since 2012 and recent years of crisis, is a tired man following a short night.”

“The weak growth prospects are a wake-up call and we are going to have a good coffee, that is to say, make structural reforms, and then continue to succeed economically,” he detailed.

Below EU average

German growth last year was significantly worse than the EU average, which is expected to reach growth of 0.6% in 2023, according to the latest forecasts from the European Commission, with marked increases for France, l Spain or Italy.

It is also lagging behind other large industrial countries, such as the United States or the United Kingdom, but is expected to begin a recovery in 2024. The government expects growth of 1.3% in 2024, the Monetary Fund International (IMF) expects an increase of 0.9%.

“We do not have the growth prospects that we expected but our economy is resilient,” assured Mr. Lindner. Now, “we have to do our homework,” he said.

A resounding ruling from the Constitutional Court canceled 60 billion euros of investment credits in November in the name of constitutional budgetary rules.

This decision forced the government of Olaf Scholz to cut back on certain expenses. According to the economic institute IFO, these budget cuts should cost Germany 0.2 points of growth in the coming months.

The country also faces structural challenges, such as a lack of labor, an aging population and a lack of investment that might continue to slow growth.

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