Germany's economy is expected to grow weakly at about 1% this year after two years of recession, with calls for more rapid structural reforms amid ongoing challenges from geopolitical tensions and competition.
After enduring two years of recession, the German economy managed a slight return to growth last year, projected to be only about 1% this year. Despite a lack of strong optimism, surveys indicate a slow improvement in business sentiment. This cautious outlook is reflective of broader expectations across Europe, suggesting that while challenges remain, there is hope for recovery.
Germany's economic struggles stem from multiple sources, particularly highlighted by the Russian invasion of Ukraine, which revealed a significant dependency on Russian gas. The country has faced a costly and complex transition away from this energy reliance. Additionally, competition from China, particularly in the electric vehicle market, has posed serious challenges. The new economic policies from the US administration have also contributed to the problems faced by German industries.
As one of the most open and export-oriented economies, Germany is highly reliant on international markets, with the US emerging as its largest trading partner in 2024, surpassing China. The countryβs dependence on a rules-based trading system has been a double-edged sword, as it was beneficial but not without its flaws. The current sentiment within Germany's economic landscape points to a pressing need for more rapid and effective structural reforms to ensure resilience and growth in the face of these persistent challenges.
