The German economy shrank 0,2% last year, the weakest performance among the euro zone's major economies, as high energy costs, lackluster global orders and record high interest rates took their toll according to the German economic institute IW. IW forecasts 0% growth for Europe's largest economy this year, lagging again as France, Italy, Britain and the United States are expected to expand. Earlier this year, Germany bordered on a recession, growing 0,2% in the first quarter from the previous three-month period on an adjusted basis. In the last quarter of 2023, the economy contracted by 0,5%.
The German government forecasts GDP growth of 0,3% this year.
Germany is not particularly attractive as a business location, according to the latest Ifo Institute Economists Panel. German business confidence improved more than expected in April, a survey showed on Wednesday, fueling hopes that the worst may be over for Europe's largest economy, although a recovery is not expected to be strong. The Ifo institute said its business climate index rose to 89,4 compared to a forecast reading of 88,8. In March, the reading was revised slightly to 87,9.
The body of 180 economics professors gave Europe's largest economy a score of 3,4 on a scale of 1 to 6. Nearly one in four assigned it one of the two lowest grades: 5 or 6. "This poor result is quite worrying for Germany as an industrial nation," said Niklas Potrafke, director of the Ifo Center for Public Finance and Political Economy.
"To improve Germany as a place of business, reforms are needed." The survey comes after data showed the German economy returned to growth in the first quarter, underscoring hopes it is overcoming its recent industry-led malaise. But despite the improving short-term outlook, longer-term challenges remain, periodically raising tensions in the coalition government. Respondents in the Ifo survey cited bureaucracy, the price of energy, the availability of raw materials and the lack of digitalization as Germany's main weaknesses.
In addition to reducing bureaucracy, Germany would benefit from “increasing public investment in infrastructure and digitalization, as well as aligning the retirement age with life expectancy,” Potrafke said. Among the country's strengths, German university professors highlighted political institutions, education and training of employees, as well as security and low geopolitical risks.
