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The German government has cut its economic forecast, warning that output will contract by 0.4 percent this year, while acknowledging that it needs to overcome „major structural challenges,” including a „frustrating” shortage of workers.
Economy Minister and Vice Chancellor Robert Habeck blamed the poor outlook for Europe’s largest economy on an energy crisis fueled by Russia’s full-scale invasion of Ukraine, a sharp rise in interest rates to tackle inflation and slowing global trade. An increase in skilled immigrants to augment its aging workforce.
„Companies are desperately looking for workers, craft businesses are having to turn down orders, shops and restaurants are having to cut back on opening hours,” he said on Wednesday. „It’s not just about skilled workers — we’re noticing that we don’t have workers in every possible corner.”
„There are also geopolitical sources that add to the uncertainty,” he said. „So we’re coming out of the crisis more slowly than expected.”
Berlin’s economic outlook has worsened since it forecast in the spring that GDP would expand by 0.4 percent this year.
However, Habeck predicts the economy will rebound early in the year as rising wages and falling inflation are expected to boost household spending. He predicted that inflation would ease from 6.1 percent this year to 2.6 percent in 2024.
„The course is now set for a sustained economic recovery,” he said, forecasting growth of 1.3 percent next year and 1.5 percent in 2025.
The country’s energy bills, high inflation and a weakening economy have eroded support for the three parties in Germany’s ruling coalition. All of these lost votes to the far-right Alternative for Germany in last weekend’s regional elections for Bavaria and Hesse.
Addressing the backlash against rising illegal immigration, which has fueled criticism of the government and increased support for the AfD, he said the shortage of skilled workers was the country’s „most pressing structural problem”.
Making the case for more refugees to join the workforce in the country, he said: „I know there are some reservations and it’s absolutely clear that we need better control over who comes in and who doesn’t. Permits to stay should go out soon.”
Germany’s economy has shrunk or stagnated for the past nine months and output shrank 0.5 percent before returning to moderate growth of 0.9 percent in 2024, the IMF forecast this week to be the worst-performing major economy this year.
Russia’s full-scale invasion of Ukraine has hit Germany hard, as Berlin’s reliance on cheap oil and gas imports from Moscow has been disrupted by war, rising energy prices and shrinking of the country’s large industrial base.
Germany’s export-focused manufacturers have suffered a setback in trade with China, Berlin’s biggest trading partner, while the country’s construction sector has been hit by high financing and material costs, reeling from canceled projects and bankruptcies.
Figures released earlier this week showed industrial production in Germany fell for a fourth consecutive month in August, pushing the sector’s output down more than 2 percent from a year earlier and down 12 percent since the start of 2018.
Habeck said part of the problem is „too much bureaucracy.” „One thing is clear: we need investments,” he said. „To do this, we need to remove barriers to investment, clear the jungle of bureaucracy and make things easier for entrepreneurs . . . Germany must no longer bind itself.