By Maria Martinez

German Economy in Crisis

BERLIN (Reuters) – The German economy is in deep crisis, with the gross domestic product (GDP) likely to contract by 0.1% this year, according to the BDI industry association. This situation marks the potential for three consecutive years of declining growth for the first time since the reunification of East and West Germany.

In contrast, the euro zone is expected to grow by 1.1%, and the global economy is projected to expand by 3.2%, indicating that Germany will lag behind its peers in economic performance.

“The situation is very serious: Growth in industry in particular has suffered a structural break,” stated BDI president Peter Leibinger in Berlin.

Factors contributing to the downturn include increasing competition from abroad, high energy costs, elevated interest rates, and uncertain economic prospects. The German economy has already contracted in the previous two years of 2022 and 2023.

Disagreements on how to rejuvenate Europe’s largest economy have also contributed to the collapse of the governing coalition. The strife is reflected in the iconic auto industry, with Volkswagen undertaking significant cost cuts to maintain relevance.

Leibinger suggested that the economic crisis extends beyond the effects of the pandemic and Russia’s invasion of Ukraine, stressing that the roots of the issues are home-grown and stem from structural weaknesses since 2018 that have been overlooked by successive governments.

He emphasized the urgent need for public investment in modern infrastructure, as well as in the transformation and resilience of the economy. Reducing bureaucracy, lowering energy prices, and developing a clear strategy to bolster the German innovation and research landscape are also critical.

Looking towards Brussels, Leibinger asserted the importance of Germany assuming a more confident leadership role and for Europe to strive for greater strategic independence.

Additionally, he commented on the potential return of U.S. President Donald Trump to the White House and his tariff threats, which could lead to a 0.5% shrinkage in the export-oriented German economy in 2025 instead of the forecasted 0.1% decline.

“The most important thing will be to enter into a transactional relationship and to have strategically important competencies that our partner can only find with us,” Leibinger added.