FRANKFURT, (Germany): The German government has slashed its forecast and now expects Europe’s largest economy to shrink for a second year running as hopes for a consumption-driven recovery fizzle out, media reported Sunday.
The economy ministry sees the German economy contracting by 0.2 percent this year, a dramatic downgrade from its prior estimate of 0.3-percent growth, according to the Sueddeutsche newspaper.
Economy Minister Robert Habeck will officially unveil the latest forecasts on Wednesday.
Germany was the only major advanced economy to contract in 2023, hit hard by an industrial slowdown, cooling export demand and surging energy prices following Russia’s invasion of Ukraine.
Expectations that easing inflation and the first interest rate cuts by the European Central Bank would drive a recovery this year have however seemed increasingly out of reach in recent months, as demand at home and abroad remained weak.
Germany’s leading economic institutes have also recently downgraded their forecasts, and now expect the economy to either stagnate or shrink by 0.1 percent this year.
“Instead of gaining momentum, the economy continues to be characterised by a general reluctance by consumers to spend,” the Sueddeutsche said.
The economic headwinds come as Germany also faces structural challenges including increased competition from China, a shortage of skilled workers and a complex green transition.
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