Germany encounters longest recession in history
(MENAFN) Germany is on track to experience its longest post-war recession, with the Economy expected to shrink for a third consecutive year in 2025, according to the Handelsblatt Research Institute (HRI). The forecast predicts a 0.1% decline in 2025, following decreases of 0.3% in 2023 and 0.2% in 2024.
This ongoing economic downturn surpasses the two-year slump in the early 2000s and results from a combination of challenges, including an energy crisis, persistent inflation, and the lingering effects of the Covid-19 pandemic. Bert Rurup, HRI's chief economist, described the situation as the worst crisis in post-war German history.
Compounding the issues, Germany's aging population is straining the economy further, and HRI estimates the country’s growth potential is now just 0.5% annually. While a modest recovery is expected in 2026, growth is forecasted to be a mere 0.9%, well below pre-crisis levels. The German central bank also revised its 2025 growth forecast from 1.1% down to 0.2% in December.
The country’s energy transition from affordable Russian gas to more expensive liquefied natural gas (LNG) from the US has led to higher energy costs, significantly impacting manufacturers and small businesses. This has resulted in numerous bankruptcies, including that of major firms like Volkswagen. The loss of affordable Russian energy, alongside rising global energy prices, continues to hinder Germany's economic recovery. Former Chancellor Angela Merkel recently criticized the decision to abandon Russian gas, highlighting the drastic increase in energy costs.
The ongoing economic difficulties have become a central issue for Germans, with the economy ranking as the top concern in recent polls. The upcoming general election in February follows the collapse of Chancellor Olaf Scholz’s center-left coalition.
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