Germany’s already bleak economy looks set to contract further through 2024, economists have told Brussels Signal.
That will further strengthen the populist Alternative for Germany (AfD) party’s chances in upcoming state and federal elections, many say.
For the first time since the COVID pandemic, German GDP contracted by 0.3 per cent in 2023, the head of Germany’s Federal Statistics Office announced on January 15.
The shrinking of Europe’s biggest economy also risks bringing the broader Eurozone into economic contraction and its associated social unrest, observers say.
Declining real incomes have already brought protestors on to the streets in Berlin, as the gap closes between the poll-leading Christian Democrats (CDU/CSU) and the now second-placed AfD.
Julius Probst, a European labour economist, told Brussels Signal there are several issues crippling Germany’s economy and “none of these factors will magically disappear overnight”.
“The German economy is expected to perform quite poorly in the year ahead”, he said, adding: “GDP growth will be very low and that means real incomes will also continue to perform poorly.”
Thus, he added: “With the poor economic fundamentals, together with the recent surge in migration, it is quite likely that the popularity of the right-wing parties will not go away any time soon.”
Among the causes of the country’s economic doldrums is the fact that exports are being hurt by weak demand from China.
Germany’s energy prices have also surged more than in other European countries, hitting industry. Manufacturing in energy-intensive industries “has cratered”, Probst said.
High interest rates weigh more heavily on manufacturing than services and Germany is “more manufacturing-intensive and less service-orientated than most other Eurozone economies,” he added.
There is also a hangover from decisions taken early in the pandemic and energy crises, when Germany turned “from expansionary fiscal policy to contractionary policy right now”, Probst continued.
A “greying population” is also increasingly constraining Germany’s industrial output.
John MacNamara, chief executive of UK finance consultancy Carshalton Commodities, claimed that Germany is now in the worst of all worlds after blocking migration for decades, followed by a mass influx from 2014 onwards.
Despite that, “economic integration” of post-2014 migrants has been “actually quite poor”, he said.
Therefore, Germany now has both an “ageing, declining ethnic German population” and the social tensions of migration without benefits so far in a tight labour market, he pointed out.
According to Federal Statistics Office president Ruth Brand, the German economy “faltered” in 2023 in an environment that continues to be “marked by multiple crises”.
Many believe that with the Government of Chancellor Olaf Scholz a “traffic-light coalition” of his Social Democrats, the Greens and Free Democratic Party, it is the centre-left which will take the brunt of voters’ ire in Germany’s forthcoming elections – set to be no later than October 2025.
A coalition collapse could bring a national vote forward. Saxony, Brandenburg and Thüringen have State elections this year.
Buoyed by the stagnating economy, the AfD has further narrowed the gap separating it from the CDU/CSU to 8 per cent, from 10 per cent a year ago, according to an INSA poll from 8-12 January. It is in second place in recent polls, with 23 per cent.
While German authorities have so far classified AfD’s branches in Thuringia, Saxony and Saxony Anhalt as “extremist”, analysts believe a comprehensive ban on the party is unlikely.
Politicians will be reluctant to pursue a total proscription of the party, argued Oxford Analytica, given the AfD’s support and fears a ban would trigger widespread social unrest.