Germany Faces Dangerous Structural Constraints in 2024

This year, Germany should be able to overcome a number of “dangerous structural problems” that have accumulated over the years. This is what the German government writes in its annual economic report, published on February 21. Europe’s former “economic locomotive” has entered a “phase with low growth potential.” Geopolitical risks are multiplying, the “forgotten” negative consequences of forced localization of production are being felt, and demographic problems do not give any respite.

As a consequence, Berlin’s economic growth forecast for 2024 is not expected to exceed a meager 0.2%, while potential growth in the medium term is estimated by the federal government at just 0.5%.

The Cabinet emphasizes that a green future and energy transition have “significant” costs and that everyone will have to tighten their belts. “Sustained prosperity requires significant additional investment,” says the document, which in an early version sought to put the idea of “transformative supply policies” at its center. As Robert Habeck, Minister of Economic Affairs and Climate Protection, has stated, “a green light must be given to the targeted promotion of certain climate-friendly technologies.” However, the concept disappeared from the final version of the program document at the request of Finance Minister Christian Lindner.

Moreover, the job incentives offered by Habeck for low-income workers and retirees were eliminated. To increase the limited growth potential even slightly, the federal government is seeking to increase female employment “to ensure compatibility between family and work.” As economists noted, “the report lacks specific measures to stimulate investment.”