The German economy continues to struggle with problems. No economic revival is expected for the current third quarter. Private consumption is not gaining momentum, likely because people still have a rather pessimistic outlook on the economic future. Domestically, there are many blockades and uncertainty about the continuity of the current federal government. In addition, important export markets in Europe, as well as in China, are developing with little dynamism. As a result, the export-oriented German industry is not really gaining momentum. Added to this are the high geopolitical risks. There is no sign of de-escalation in the wars in the Middle East and Ukraine. The uncertain outcome of the American presidential elections and trade conflicts, such as the one now between the European Union and China, are likely to further dampen economic development.
The economic development continues to be hampered mainly by German industry. Production still cannot gain momentum, and incoming orders do not suggest any noticeable improvement; the order backlog decreased during 2024 and only slightly increased again in July by 1.0 percent. Important indices such as the ifo Business Climate Index or the S&P Purchasing Managers‘ Index also indicate that no economic upturn will emanate from the industry, at least for the time being.
Services are also unable to revive the German economy. Despite the decline in inflation rates and increased wages, households are reluctant to spend. The consumer climate has recently deteriorated even further from an already gloomy state. The business climate of service companies also does not indicate a noticeable revival. At least the situation in the labor market has only slightly worsened given the economic weakness. However, with the likely continuing stagnation phase of the German economy, the labor market is expected to gradually cool further.
At least the inflation rate has recently fallen below the two percent mark. I no longer see any risks from inflation at the moment. The situation is similar in other member countries of the European Union. The European Central Bank will likely continue to lower its key interest rates.
All in all, the German economy will likely slightly contract in 2024. For 2025 and 2026, one may expect a slight acceleration in growth. However, there will be no boom for the German economy. Growth rates of 0.8 and 1.4 percent in the next two years seem to be reasonable. Unemployment will rise slightly but remain low.
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