German Government Raises 2024 Economic Growth Forecast to 0.3%

German Economy Minister Robert Habeck presented the federal government's 2024 spring economic projection on Wednesday, slightly increasing the 2024 growth forecast to 0.3%, up from 0.2% in February. The government said there were signs that Europe's top economy was at a "turning point" after a period of weakness.

Habeck cited improvements in key indicators like factory output and business activity as reasons for the more optimistic outlook. The ministry also reduced its forecast for inflation this year to 2.4%, down from 2.8%, and expects it to fall below 2% next year. "Declining energy prices and easing supply chain issues have contributed to the improving economic situation," Habeck noted.

However, the minister acknowledged that Germany's competitiveness has fallen behind other countries and that the country still has a lot of work to do to address deep-rooted problems. The coalition government's internal disagreements have also hindered efforts to reignite growth, according to critics.

Why this matters: As Europe's largest economy, Germany's economic performance has significant implications for the broader European Union. The revised growth forecast, while modest, signals a potential turning point after a challenging period marked by high energy costs, supply chain disruptions, and geopolitical tensions. Germany's ability to address structural issues and boost competitiveness will be crucial for its long-term economic prospects and the stability of the EU.

Despite the improving outlook, growth is still expected to be slower than other developed economies, and Habeck stressed that Germany has a lot of work to do to address deep-rooted problems like an aging population, labor shortages, and the transition to greener industries. The German economy was the weakest among its large euro zone peers last year due to high energy costs, feeble global orders, and record-high interest rates.

Key Takeaways

• German govt raises 2024 growth forecast to 0.3% from 0.2%
• Inflation forecast reduced to 2.4% in 2023, expected below 2% in 2024
• Improving factory output and business activity signal economic turning point
• Germany's competitiveness lags, coalition disputes hinder growth efforts
• Slow growth compared to peers, structural issues like aging population remain