Germany projects underwhelming economic growth through 2024

Germany’s economy will shrink by 0.4% this year and grow only by a relatively modest 0.7% next year, the government’s panel of independent economic advisers forecast Wednesday.

The panel joined several other forecasters in revising downward its outlook for Europe’s biggest economy. Its prediction for this year was in line with one issued by the government about a month ago, but next year’s forecast was considerably gloomier than the 1.3% the government expects.

In their previous outlook in March, the experts had forecast that gross domestic product would grow 0.2% this year and 1.3% in 2024.

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The panel’s chair, Monika Schnitzer, said that “the economic recovery in Germany is delayed — it is … still being slowed by the energy crisis and reduced real income caused by inflation.” She noted that central banks’ interest rate increases and economic weakness in China have made Germany’s trading environment more difficult, while the high interest rates are dampening investment and construction at home.

Inflation in Germany has now fallen back to 3.8%, its lowest level since August 2021. People’s real income should increase next year, leading to higher private spending and “a cautious economic recovery,” Schnitzer said.

As well as the current economic headwinds, Germany has been grappling with other issues such as an aging population, lagging use of digital technology in business and government, excessive red tape that holds back business launches and public construction projects, and a shortage of skilled labor.

In its annual report, the advisory panel suggested that the country’s retirement age — which is currently being raised gradually to 67, a level it will reach in 2031 — be raised further in the future to take account of rising life expectancy.

It didn’t offer specifics, but panel member Martin Werding pointed to a possibility of raising the retirement age by six months every 10 years so that it would reach 68 in mid-century.