The IMF has again lowered its growth forecast for Germany, which is struggling with declining exports and structural problems.
The IMF, which updates the World Economic Outlook report, expects the global economy to grow by 3.3 percent this year and next.
The IMF warned that extending protectionist measures through a new wave of tariffs could increase trade tensions, reduce investment, disrupt global trade and disrupt supply chains again.
While the IMF report highlighted “downside risks” posed by the impact of the energy crisis on Europe and China's real estate sector, it noted that the renewed rise in inflation was one of the biggest risks to the global economy.
The IMF cut its growth forecast for the German economy from 0.8 percent to 0.3 percent this year and from 1.4 percent to 1.1 percent next year. The IMF once again predicted that Germany would have the weakest growth among the G7 countries.
It is noteworthy that Europe's other major economies, France and Italy, are weakening, but are well ahead of Germany, with growth forecasts of 0.8 and 0.7 percent respectively for this year.
While the IMF reduced its forecast for Germany by 0.5 percentage points, it increased its forecast for the USA for this year by 0.5 points to 2.7 percent.
Leading German economic research institutes also expect average growth of 0.3 percent in 2025
On the other hand, the German economy contracted last year for the second time in a row as increasing competition with China and structural problems slowed the economy.
While the seasonally and calendar-adjusted gross domestic product (GDP) in Germany shrank by 0.1 percent in the last quarter of last year compared to the previous quarter, it fell by 0.2 percent in 2024 as a whole compared to the previous year. The German economy, which is the third largest economy in the world, experienced a decline in 2024 after falling by 0.3 percent in 2023.
The German economy last contracted two years in a row in 2002 and 2003.
The country will enter a technical recession if it contracts in the first quarter of 2025.
On the other hand, if the German economy, which shrank by 0.1 percent in the last quarter of last year, shrinks in the first quarter of 2025, it will enter a technical recession, defined as two consecutive quarters of contraction.
Germany, whose economy shrank by 0.3 percent year-on-year in 2023 due to unusually high purchasing power inflation, high energy prices, falling investment, weak foreign demand and high interest rates, was the only country among the G7 countries to shrink.
Companies that form the backbone of Germany, Europe's largest economy, are facing harsh macroeconomic winds and competition due to rising energy prices and declining foreign demand, which are a particular problem in Germany's export-dependent economy Chinese companies.
While important sectors such as the automotive, mechanical engineering and chemical industries as well as the construction sector are struggling with low demand, German exports fell by 0.8 percent in 2024 compared to the previous year. Private consumer spending only rose by 0.3 percent.
While expensive energy and excessive bureaucracy compared to other countries challenge Germany as an industrialized country, Germans are not spending their money due to insecurity. The old infrastructure in the country also needs to be renewed.
While the Russia-Ukraine war brings political uncertainty to the German economic agenda, ranging from budget disputes, the early elections on February 23rd and uncertainty about the future economic policy framework are causing many companies to hesitate about investing.
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