German government scales down expectations for economic growth, stresses need for climate investments

The German economy will recover more slowly from its current recession and achieve lower growth figures next year than previously expected, the government’s latest projection has found. “We’re leaving the crisis slower than we thought,” economy minister Robert Habeck said, arguing that the aftermath of the energy crisis and the general geopolitical situation contributed to the country’s ongoing economic challenges. The economy is expected to contract about 0.4 percent this year and recover to a growth rate of 1.3 percent in 2024, the Green Party politician said. Back in spring this year, the government had assumed a growth rate of 0.4 percent in 2023 and 1.6 percent in the following year.  The minister said structural economic difficulties had to be addressed, such as excessive bureaucracy or skilled labour shortages. Retreating inflation and an overall robust job market give reason to be confident that the economy is bottoming out, as companies and private consumers are likely to increase spending again, Habeck argued. “Investments in machinery and factories should be picking up again, not least against the backdrop of the high investment needs in the context of transforming the economy towards climate neutrality,” Habeck’s ministry (BMWK) stated.

However, investments in the construction sector are likely to remain suppressed and even decline further in the near future, the ministry added. “It’s clear that we need investments. Therefore, we must remove hurdles currently standing in the way of them,” Habeck said, adding that eased licensing procedures and other measures already adopted should show effects soon. “Germany must no longer chain itself.” The lack of skilled workers will be the country’s greatest economic challenge in the longer run, he added. In order to recruit more migrant workers, a targeted and coherent migration policy would be indispensable.  

Fears of a greater economic slump for Germany have been widespread with the emergency of the energy crisis and Russia’s war on Ukraine, which pulled the plug on the country’s cheap access to Russian gas. However, the economy already during the summer looked set to remain on a low-growth track even as factors such as price inflation and supply chain problems were receding. While the transition towards low-carbon production amid high fossil fuel prices is seen as a great challenge for Europe’s biggest economy and the EU’s industrial competitiveness, there are also widespread expectations that a resolute shift to decarbonisation ultimately will benefit the industry.