Structural problems are weighing on the economy
The current economic downturn cannot be attributed to cyclical factors alone. The transition to more sustainable production methods, demographic change and increasing competition from China are presenting Germany with profound challenges that are limiting long-term growth potential. In particular, manufacturers in energy-intensive industries are facing regional disadvantages due to rising energy costs.
Economic weakness is felt in the labour market
The ongoing economic stagnation manifests itself in a gradual increase in the unemployment rate. Although the number of short-time (Kurzarbeit) workers is rising, it remains comparatively low given the weak industrial development. This suggests that many companies expect the reduced demand for labour to be permanent and, as a result, are more likely to cut jobs or outsource production capacity abroad than to resort to short-time working. Despite all this, employment figures continue to rise, albeit at a slower pace.
ECB likely to continue interest rate cuts
After a period of intensive interest rate hikes, the European Central Bank (ECB) has begun to lower interest rates in moderate steps. In September and October of last year, the deposit rate was reduced by 0.25 percentage points in each month. As a result of a further reduction of 0.25 percentage points in December, a further five interest rate cuts to 1.75 % are expected by June 2025 due to the economic downturn.
Opportunities and risks are balanced
An intensification of geopolitical conflicts could have a greater impact on demand for export goods than originally assumed. At the same time, however, there is a possibility that financing conditions could improve, thereby boosting investment demand. Furthermore, it cannot be ruled out that rising real incomes and a more rapid normalisation of savings behaviour will boost consumer spending by private households to a greater extent than taken into account in previous forecasts.