December 2024 | German real gross domestic product has been stagnating for five years (up by just 0.1% since 2019) as a result of several factors. Notably, its automotive sector is in crisis and global trade is no longer as supportive of its exports as it was in the past. Germany is also facing a number of challenges simultaneously: industrial competitiveness is suffering from rising energy costs and increasing competition from high-quality products from China. Additionally, the rapid ageing of its population – faster than in the rest of the eurozone – is also eroding its economy’s potential growth, estimated at 0.8%. Furthermore, if US tariffs are implemented, they could cost the German economy 0.6pp of growth, according to the Bundesbank. Disagreement over the budgetary measures to be taken to deal with threats and challenges is largely responsible for the break-up of the ruling coalition.
01 | The German economy has been lagging behind other eurozone countries due to structural changes in its economic model and global trade. A huge investment effort would be needed to relaunch it.
02 | While a major fiscal stimulus plan in Germany should not be anticipated next year, even modest reforms could influence positively investor sentiment, particularly if paired with a new off-budget fund for defense spending.
03 | If US tariffs are implemented, they could cost the German economy 0.6pp of growth, according to the Bundesbank.
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