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German economy faces contraction in 2024

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Europe 15 Feb 2024 03:28 PM IST Economic Times

Germany's DIHK chambers of industry and commerce have projected a contraction of 0.5% for Europe's largest economy in 2024. Several factors, including high energy prices, bureaucratic hurdles, a shortage of skilled workers, and weak domestic demand, are contributing to this downturn in economic output.

According to a DIHK poll involving over 27,000 companies, 35% anticipate a deterioration in business conditions over the next year, while only 14% expect improvement. This pessimistic sentiment reflects a growing sense of unease among businesses, with DIHK noting that this would mark only the second time in Germany's post-war history that the economy experienced consecutive years of contraction, the previous instance being in 2002 and 2003.

DIHK head Martin Wansleben emphasised the significance of this economic downturn, calling it a "clear alarm signal" that both Germany and Europe must heed. The German government is set to release its economic growth forecast for the year ahead, with reports suggesting a revision downward to a mere 0.2% growth rate. However, this projection remains more optimistic than DIHK's assessment. 

The survey highlighted concerns regarding Germany's economic policy, with three out of five companies viewing it as a business risk. As a result, 33% of firms intend to reduce investments within Germany over the next 12 months, while only 24% plan to expand their operations domestically. 

In response to these challenges, Germany's ruling coalition is gearing up to unveil proposals aimed at bolstering the country's attractiveness as a business destination. This initiative, expected to be presented by spring, may entail reforms such as tax restructuring and streamlining bureaucratic processes to stimulate economic growth and address the concerns raised by the business community.