Germany's Economy Contracts by 0.2% in 2024 Amid Challenges

By Maria Martinez

BERLIN (Reuters) -Germany's economy contracted for the second consecutive year in 2024, highlighting the depth of the downturn gripping Europe's biggest economy.

Germany's economy shrank by 0.2% over the full year - in line with economists' forecasts - and by 0.1% in the final quarter, the Federal Statistics Office said on Wednesday, suggesting little sign of an imminent reprieve.

"Cyclical and structural burdens stood in the way of better economic development in 2024," Ruth Brand, president of the statistics office, said at a press conference to present the data.

Increasing competition from abroad, high energy costs, still elevated interest rates and uncertain economic prospects all took a toll, Brand said.

Germany's economy shrank by 0.3% in 2023. The last time it suffered two consecutive years of contraction was in the early 2000s.

An export oriented economy, Germany is suffering from weak global demand and competition, especially from China. Exports were 0.8% lower in 2024 than the previous year.

Export opportunities could deteriorate further after the inauguration of U.S. President-elect Donald Trump, who has threatened sweeping trade tariffs, LBBW economist Jens-Oliver Niklasch said.

"There are currently very strong indications that 2025 will be the third year of recession in a row," Niklasch added.

WINTER BLUES

Some analysts were disappointed by the contraction in the final quarter of last year. If first quarter growth for 2025 is also negative, the economy will have fallen back into recession - normally defined as two consecutive quarters in contraction.

The estimate for the fourth quarter is preliminary. Revised figures will be released on Jan. 30.

“Hopes of a slight increase in the fourth quarter were disappointed and there is no sign of an improvement in the first quarter," Commerzbank's chief economist Joerg Kraemer said.

The European Central Bank is expected to cut interest rates three or four more times this year, but Kraemer questioned how much help this would give German businesses until there was a "real restart in economic policy" after the country's federal election.

Germans go to the polls on February 23.

A slight recovery in real household incomes and falling interest rates might boost consumption and construction investment somewhat, said Franziska Palmas, senior Europe economist at Capital Economics.

But she said this would be mostly offset by a continued drag from high energy prices and weak demand for Germany’s key industrial goods like cars and machinery.

(Reporting by Maria Martinez, Writing by Miranda Murray, Editing by Christina Fincher)