According to preliminary data released by the statistics office on Thursday, Germany's gross domestic product shrank by 0.2% in the fourth quarter compared to the previous three-month period, exceeding analysts' expectations of a 0.1% decline. This unexpected contraction has heightened concerns about a potential recession as Europe's largest economy faces political uncertainty.
In addition, both Germany and the euro zone experienced economic contraction in the fourth quarter, with indications pointing to a stagnant economy. If the first-quarter growth in 2025 also shows a negative trend in Germany, the country could slide back into recession, which is typically defined as two consecutive quarters of economic decline.
Commmerzbank chief economist Joerg Kraemer noted that leading indicators like business sentiment or incoming orders do not yet signal any improvement for the first quarter. He anticipates, From the spring onwards, an anaemic upward trend is on the cards at best.
Various factors such as increased foreign competition, high energy prices, rising interest rates, and uncertain economic prospects have contributed to the economic slowdown in Germany. The government has lowered its growth forecast for 2025 to 0.3% from 1.1% due to trade tensions and domestic uncertainties related to the upcoming election.
There are concerns within business associations that Germany may see another economic contraction this year, potentially marking three consecutive years of decline – a situation not observed since reunification. Carsten Brzeski, global head of macro at ING, emphasized that the current economic challenges are more complex compared to the early 2000s, stating, The current problems are much more diverse and hence even more difficult to solve than they were 20 years ago.
The ongoing debate on how to revitalize Germany's struggling economy led to the government's collapse in November, paving the way for a snap election on Feb. 23 where economic concerns top the list of voter priorities.
Andrew Kenningham, chief Europe economist at Capital Economics, highlighted the country's prolonged economic stagnation over the last five years, predicting that, The structural stagnation in Germany will persist for some time despite the potential relaxation of fiscal policies post-election.