OECD halves growth forecast for Germany

OECD halves growth forecast for Germany
The container port in Duisburg.

On Monday it halved its forecast for growth in gross domestic product (GDP) to 0.3 percent, after it even shrank slightly last year. The other large euro countries France (0.6 percent), Italy (0.7 percent) and Spain (1.5 percent) are expected to perform significantly better.

Other industrialized nations such as the USA (2.6 percent) and Great Britain (0.7 percent) are also likely to do better, according to the Paris-based Organization for Economic Cooperation and Development (OECD). Only Argentina is expected to perform noticeably worse (-2.3 percent). For 2025, the OECD lowered its forecast for Germany from 1.2 to 1.1 percent, which would once again remain below the Eurozone average of 1.3 percent.

Dependence on Russian energy as a reason

“This is mainly because the energy-intensive industry has a greater weight in the German economy than in other countries in the euro zone,” said OECD expert Isabell Koske, explaining the expected weak performance of Europe’s largest economy. “The dependence on Russian energy imports was greater in Germany than in France, for example.” After the Russian invasion of Ukraine, this led to a greater increase in the price of energy in Germany. This still affects production in energy-intensive industries.

“In addition, the budget crisis has increased uncertainty for companies and households,” Koske also called a home-made problem. The German government has embarked on a course of austerity following the Constitutional Court ruling on the debt brake. The crisis led to a decline in investments in the fourth quarter of 2023 and held back private consumption despite increased real wages. The labor market is comparatively robust despite the ongoing economic downturn. “The shortage of skilled workers is the biggest problem for many German companies,” said Koske. “Despite the current poor business situation, many companies are holding on to their workforce.”

In order to get the economy going again, according to OECD expert Robert Grundke, the financing of the planned projects in the climate and transformation fund beyond 2024 must be clarified in order to create planning security for companies and households. “In order to accelerate the energy transition and digitalization, infrastructure planning and local administrative capacity must be improved and the administrative burden reduced,” said Grundke. Binding and uniform IT standards should be established, the harmonization of administrative procedures and joint software development should be promoted across municipalities and countries.

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