MercoPress. South Atlantic News Agency

German economy shrinks second year running; lack of Russian gas and Chinese industry hit hard

Formerly a major customer for cheap Russian gas, Germany has had to scramble to find other energy suppliers

The German economy, the heart of European Union dynamism shrank by 0.2% in 2024, the second year in a row, according to Destatis, the German Federal Stats Office. In 2023, the German GDP, Europe’s largest contracted by 0,3%.

The publication of the figures comes weeks before Germans head to the polls to elect a new government.

Earlier fourth-quarter data also anticipated that the economy had also reduced by 0.1% compared to the previous quarter.

Germany has been struggling with a cost of living crisis over the past several years, partially to do with skyrocketing energy prices brought on by the Russian invasion of Ukraine.

Formerly a major customer for cheap Russian gas, Germany has had to scramble to find other energy suppliers. The war, as well as climate change and other international supply chain factors have also contributed to rising inflation and higher costs of essentials like groceries and hygiene articles.

While inflation has become a global phenomenon, it hit Germany particularly hard due to the country's relatively low grocery prices in years prior.

Traditionally an export-heavy economy, decreased demand for German products has also played a role. Chinese-made vehicles, particularly electric ones, example, have made a dent in demand for German cars.

Germany is also struggling to balance its historical devotion to a balanced budget with aging infrastructure and lagging competitiveness in industry and technology. In effect a dispute over the “debt cap”, a mechanism that controls how much debt the government is allowed to take, led to the collapse of Chancellor Olaf Scholz's coalition government in November, triggering the snap election.

The collapse occurred when Scholz asked for Finance Minister Christian Lindner to resign. Linder and his business-friendly Free Democrats (FDP), though the most junior member of the coalition, refused to budge on changing the ‘debt cap’ to allow for more borrowing and spending, so FDP pulled out of the coalition.