Published On: Thu, Mar 7th, 2024

Eurozone nightmare with German economy in freefall – performs worst in G7 for second year | World | News

The German economy will be the worst-performing economy in the G7 for the second successive year, as the country’s Chancellor tries to contend with a spiralling property downturn and net zero uncertainty.

Despite being the largest economy on the continent, Germany is due to grow by just 0.2 percent according to the Ifo Institute. Worse still, the latest prediction is a significant downgrade on the previous forecast of 0.7 percent growth.

After last year’s 0.1 percent contraction, Germany is on the cusp of being the G7’s worst-performing economy for a second year running, according to forecasts by the International Monetary Fund (IMF).

Timo Wollmershäuser of the Ifo said: “Consumer restraint, high interest rates and price hikes, the government’s austerity measures, and the weak global economy are currently dampening the economy in Germany and leading to another winter recession.

“Economic output will accelerate toward the middle of the year as interest rate and price burdens gradually disappear and consumers’ purchasing power increases.”

Plummeting property prices have forced developers to shelve or cancel projects, meanwhile, sluggish Chinese growth has hit Germany particularly hard as it is one of the country’s major trading partners.

The two factors have collided with Germany’s overreliance on Russian energy. Since the war in Ukraine, Vladimir Putin has used the conflict to cause havoc in the European energy market.

Last month, the German central bank, the Bundesbank, issued a stark warning that “uncertainty regarding climate and transformation policy remains elevated”.

German Chancellor Olaf Scholz found his government in crisis late last year, after the courts devastated his £51bn net zero budget. The court ruled that ministers could redirect unspent Covid emergency funds to take down climate change.

The glimmer of good news is that inflation in the world’s third-largest economy is on its way down. Last year the rate was an uncomfortable 5.9 percent but has since fallen to the more manageable 2.3 percent. Ifo has since predicted the rate dropping below 2 percent to 1.6 in 2025, as the cost of living squeeze gives way.

Despite the country’s successive economic woes, finance minister Christian Lindner is adamant that the country is not the “sick man” of Europe. In January, Mr Lindner branded the country the “tired man”.

He told the World Economic Forum in Davos: “Germany is not the sick man”.

“After a very successful period since 2012 and these years of crisis, Germany is a tired man after a short night, and the low growth expectations are partly a wake-up call. And now we have a good cup of coffee – which means structural reforms – then we will be continuing to succeed economically.”

Although the UK doesn’t find itself in the wooden spoon position, the British economy is only one place ahead of Germany in the G7.

However, unlike the Germans, Britain is much closer to closing the gap on the rest of the G7. The IMF is forecasting 0.6 percent growth, behind Italy at 0.7 percent.

But it’s the Americans that are leading the way, with growth set to reach 2.1 percent.

Such is Germany’s plight, which is set to be outperformed by the South African economy, which the IMF predicts will grow by 1 percent this year.

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