Germany’s economic outlook ‘not great’ as production slump deepens: Expert

By Gokhan Ergocun

ISTANBUL (AA) – The German economy’s struggles over the past couple of years are no secret, fueled mainly by the repercussions of the Russia-Ukraine war, now in its third year with no end in immediate sight.

Dark clouds are still hovering over the European industrial powerhouse, and a German expert has warned that its current “economic outlook is not great.”

This January, Germany’s industrial production plunged 5.5% on a yearly basis, coming on the back of a 3.5% dip in December.

Germany “reacted fast to the cut-off of Russian gas supply by installing terminals for liquefied gas,” but that has not been enough to protect its “energy intensive industry,” according to Frank Herkenhoff, head of communications at ZEW – Leibniz Center for European Economic Research.

“Companies have partly switched to other energy sources, and households have reduced their energy consumption. That all helped to alleviate the problem of reduced gas supply,” he told Anadolu.

“Still, the energy intensive industry has suffered and reduced production in Germany. It is to be expected that part of this production has shifted abroad and will stay there.”

Just last week, the Munich-based Ifo Institute for Economic Research cut Germany’s growth forecast for 2024 to 0.2%, just slightly better than the 0.1% expansion projected by another think tank, the Kiel Institute for the World Economy.

Following 1.8% growth in 2022, Germany’s economy shrunk by 0.3% last year, while also entering a technical recession with contractions in two consecutive quarters – the third and fourth – of 2023.

The Kiel Institute has warned that Germany’s path out of this economic slump will take more time.

Achim Wambach, president of ZEW, previously said the German economy remains “in a bad place,” with assessments by survey respondents having “deteriorated to the lowest level since June 2020.”

Building on this view, Herkenhoff said energy prices “have fallen but are still high,” while “world demand is weak, and there is a rise in political uncertainty.”

Another issue is that “the proposed law to incentivize investments … is stuck in the political process,” he said.

Some reason for optimism, according to Herkenhoff, is that a falling inflation rate and the likely lowering of interest rates “will help to stimulate consumption.”

On the energy front, he said the country is expected to “increase its instalments of wind energy and solar energy in order to become less dependent on fossil energy sources.”​​​​​​​