Germany’s economic state continues to be precarious, as top economists have significantly lowered their growth prospects for 2024, from 0.7 to a mere 0.2 per cent. The independent economic council, which offers advice to the federal government, revealed their spring report on Wednesday, indicating a lethargic yet stabilising condition of Europe’s top economy. They predicted a brighter economic future after six months, similar to their previous autumn projection.
According to the economists, it is only from next year that the economy, currently buckling under recession, will see proper growth, with 0.9 per cent projected for 2025. This recent survey resonates with other German forecasts: the European Commission predicts 0.1 per cent while the federal government predicts 0.3 per cent.
Vox Grimm, the chair of the council, presented the sombre report in Berlin on Wednesday, announcing that the best that German manufacturing and export companies can hope for this year is an international boost. Nonetheless, she stressed that companies should anticipate tough competition, escalating labour fees, and high energy rates.
At the moment, the ongoing economic and political uncertainty has led to a decrease in German spending. Prof Martin Werding, economist at the Ruhr University and a member of the council, mentioned, “Private households remain reluctant to spend, and industries and construction firms see few fresh orders, yet, we expect a gradual improvement in the German economy in the course of 2024”.
Why is there a sudden increase in the construction of housing here?
As Christian Lindner, German finance minister, continues to promote major reductions in government spending, the proposal by the economists to rejuvenate the sluggish German economy involves heavy spending financed by highway tolls for private cars, a contentious issue politically.
With transportation volumes expected to surge, the economists suggested “a vehicle mileage-based toll” depending on the vehicle’s weight, to alleviate infrastructure pressure. A previous, ill-fated attempt in 2019 to establish a toll led to an unforeseen compensation payout of €234 million as the proposal to charge only cars not registered in Germany was labelled illegal by the European Commission.
The economic council’s spring report additionally criticised Germany’s faltering job market.
Since 2001, German workers have been granted the freedom to opt for less than a full employment week, with 31% currently operating under a workload less than the standard 37-hour week. Recent data from Eurostat and the Organisation for Economic Cooperation and Development (OECD) highlight that Germans, on average, have the shortest working hours across Europe, clocking in at 35.3 hours per week.
The figures have drawn criticism from conservative politicians, indicating that the guidelines implemented in 2001 were flawed and require re-evaluation. Mr Michael Kretschmer, the minister president of Saxony, has emphasized that the trend of part-time employment should be an anomaly rather than a norm, in an interview with the Handelsblatt business newspaper.
With elections in September looming, he advocates for growth and full employment post-crisis, in a country where the unemployment rate is presently at six per cent. However, Germany’s economic visionaries suggest that the situation doesn’t stem from a lack of willingness to work, but more so from a shortage of suitably skilled individuals.
The spring economic report underscores the mounting challenge faced by businesses to secure adequately skilled labour to fill their vacant positions.