Despite a stronger start to the year, Germany’s economy is predicted to stagnate in 2024 and continue to fall behind its European peers. The manufacturing and construction sectors are particularly affected, remaining in recession. Consumption is expected to increase as inflation eases, but this may not be sufficient for a true upswing in the economy. Investments are hindered by the geopolitical situation and high interest rates, which make financing more expensive.

In 2023, Germany’s economy experienced a 0.2% contraction, the weakest performance among major euro zone economies. The IW forecasts zero growth for Germany this year, with other countries like France, Italy, Britain, and the United States expected to expand. Although Germany saw growth of 0.2% in the first quarter of 2024, the previous quarter had seen a 0.5% shrink.

Foreign trade is not expected to provide much economic stimulus, and the unemployment rate in Germany is projected to increase to 6% on average for the year. Despite a record number of 46 million employed people on average in 2024, the effects of economic weakness are becoming more evident on the labor market. There is a need for policy measures to improve business conditions and unleash the full potential of the German economy.