Europe's Largest Economy Expects Recession for Second Year in Row

The German government has cut its forecasts, with Europe's largest economy now looking at a second consecutive recession as hopes for a consumer-led recovery fade, media reported on Sunday.

The government sees the economy shrinking by 0.2% this year, a significant downward revision from its previous estimate of 0.3% growth, according to the Süddeutsche Zeitung.

Economy Minister Robert Habeck will officially unveil the latest forecast on Wednesday.

European EconomyEconomic growth in Europe has slowed again. Germany faces major problems

The German economy is the only advanced economy in the world to contract in 2023, hit by a slowdown in industry, export demand and rising energy prices after Russia's invasion of Ukraine.

In recent months, a recovery driven by falling inflation and interest rate cuts by the European Central Bank this year has looked increasingly distant, with demand at home and abroad remaining weak.

Germany's leading economic institutions have also rejected their forecasts, now expecting the economy to stagnate or shrink by 0.1% this year.

“Instead of gaining momentum, the economy is still characterised by consumers’ reluctance to spend,” Süddeutsche said.

The economic headwinds come at a time when Germany is facing increasing competition from China, a shortage of skilled workers and a green energy transition.

However, the German government has been upbeat in its forecasts for 2025, the newspaper reported.

The Economy Ministry will announce on Wednesday that it now expects growth of 1.1% next year, according to Süddeutsche, up from a previous forecast of 1%.

By 2026, the economy is expected to expand by 1.6%.