2024-02-17 13:19:03
Devastating outlook for the German economy: If everything continues as usual, the federal government expects hardly any growth until 2028.
The federal government expects only mini-growth for the German economy not only in 2024, but also in the coming years – unless “additional measures” are taken. This emerges from a draft of the government’s annual economic report, which is available to t-online.
Accordingly, the government expects “an annual potential growth of just [0,6 bis 0,8] percent”. The information in square brackets indicates a kind of corridor; in the final version of the report, these will probably be replaced by a single value. For comparison: in the years 2010 to 2019, the economy grew by an average of 1.9 percent per year.
Economics Minister Robert Habeck (Greens) wants to present the annual economic report next Wednesday in Berlin. The document, which runs to more than 100 pages, is an inventory of Germany as a business location, coupled with the government’s economic policy plans.
Habeck stomps growth forecast for 2024
A few days ago, Habeck had already confirmed a report from the Reuters news agency on the sidelines of an event, according to which the government is only expecting a minimal increase in gross domestic product for 2024. Instead of the 1.3 percent growth expected in the fall, Habeck is now only assuming GDP growth of 0.2 percent, although this number does not yet appear in the draft version.
Potential growth is the expected percentage increase in economic output year-on-year. Since this is a forecast, it requires assumptions about individual conditions, which can of course change. The calculation is therefore subject to uncertainties.
The federal government also points this out in the draft annual economic report. However, the trend towards mini-growth is not something that came out of thin air. The five “economic wise men” had already presented a similar forecast at the end of 2023. The Expert Council of Economists, which advises the federal government on economic issues, is assuming even lower potential growth of just 0.4 percent per year for the next few years up to 2028.
Without growth there is a risk of distribution struggles
The main reason for the foreseeable economic downturn is demographic change: Because hundreds of thousands of members of the baby boomer generation are retiring and not many younger people are moving into the labor market, the volume of work is falling.
The annual economic report also emphasizes this: “Unlike in the 1980s, today it is less about increasing the demand for workers in the sense of combating unemployment. In view of the increasing shortage of skilled workers, it is more important to stabilize the existing job supply, increase potential and an increase in labor productivity is required.”
Robert Habeck’s ministry also states why higher economic growth is so important: “The federal government is convinced that steady and appropriate growth dynamics are necessary in order to cope with the pressing tasks without increasing distributional conflicts.” In plain language this means: If prosperity doesn’t grow quickly enough – and with it tax revenue – Germany will be in trouble. Then the state – as it recently did with farmers – has to cut off grants to some in order to spend money elsewhere, for example on tax cuts.
Different views on economic policy
In order to stimulate the economy, to improve conditions and to enable even greater economic growth, “the federal government is relying on one in particular [transformative] Supply policy”. This means, among other things, improved location factors that are currently seen as an obstacle to dynamic development, such as the shortage of skilled workers and workers, the burden of bureaucracy and affordable housing.
What is interesting about the wording in the draft version is the term “transformative”, which is again placed in square brackets. The government, especially the Ministry of Economics led by Habeck and the Ministry of Finance led by Christian Lindner (FDP), do not yet seem to agree on this.
While Habeck and the Greens have a strongly interventionist understanding of economic policy that guides the transformation of the economy, the Liberals and Lindner stand for a state that sets good framework conditions for companies, but takes them less by the hand and controls their investments .
In total, the annual economic report lists ten areas of action in which the government wants to become more involved in the interests of the necessary economic recovery, including shortening approval procedures and securing energy supplies. There is currently no mention of tax cuts for companies, as Habeck himself had brought into play in connection with a special debt pot, in the draft version available to t-online.