Germany

German economic growth remains muted, having stalled in 2023 with zero growth and expected to navigate challenging conditions in 2024 with a modest increase of just +0.1%. The German government's 10 point economic plan for 2024 is unlikely to significantly boost investments or lift the economy from its low potential growth trajectory. GDP growth is projected to reach +0.9% in 2025. Overall, Germany faces a combination of cyclical and structural headwinds. High energy costs are compounded by weakened demand and intensified competition, particularly in highly cyclical goods such as cars, machine tools and chemicals. Additionally, the disparity in global growth favoring services, along with declining labor productivity, poses further challenges for the domestic economy. Germany is also grappling with structural issues, including labor shortages, elevated energy expenses, a burdensome regulatory and tax environment, slow digitalization progress and political uncertainty. While the economic growth initiative for 2025 has the potential to stimulate domestic demand and encourage investment – projected to contribute an additional +0.5pp to growth – successful implementation of these measures will be crucial for realizing this potential.

German insolvencies have remained on the rise since the reinstatement of the insolvency laws, which had been temporarily suspended during the Covid-19 pandemic and the energy shock crisis due to Russia’s invasion of Ukraine and more stringent financing conditions. In 2024, insolvencies are projected to rise by +21% compared to 2023, reaching an estimated 21,500 cases. The sectors facing the greatest challenges include trade, hospitality and construction. Looking ahead to 2025, a slight easing is anticipated, with insolvencies expected to increase by just +2% from 2024, totaling around 22,000 cases.

Like in other Eurozone economies, inflation pressures in Germany are beginning to ease in the energy and food sectors, despite some short-term volatility. However, downside risks remain, particularly from core inflation, with services inflation proving to be especially persistent. We project an inflation rate of 2.4% in 2024, followed by a slight decline to 2.1% in 2025. Wage growth, which is particularly significant for the labor-intensive services sector, has surged sharply in the last quarter. We project wages to rise by 4.8% in 2024 and by 3.1% in 2025.