Germany's Economy Shrinks for a Second Year Running

Germany’s economy, the powerhouse of Europe, contracted for a second consecutive year in 2024, with GDP declining by 0.2%, following a 0.3% drop in 2023. This marks the first back-to-back annual contraction since the early 2000s, a period defined by high unemployment and sluggish growth. 

Industrial production, a key driver of Germany’s economy, remains nearly 10% below pre-pandemic levels, reflecting ongoing structural challenges.  

Volkswagen, a bellwether for Germany’s industrial strength, has highlighted these challenges. The automaker announced over 35,000 job cuts and plans to shift production to Mexico, as high labor costs and sluggish productivity continue to erode competitiveness. 

The pressure on exports has intensified, with China increasingly manufacturing goods locally rather than importing from Europe. Meanwhile, potential US tariffs are looming, threatening to further strain German exports and investments.  

What Does This Mean for Me?

The European landscape paints a similarly challenging picture. Industrial production across the eurozone rose modestly in late 2024 but is still 9% below levels recorded seven years ago. 

Persistent energy price hikes, partly driven by geopolitical tensions such as Russia's invasion of Ukraine, continue to weigh on production costs and economic stability. Germany’s central bank has projected stagnation for 2025, with recovery only starting to take hold gradually.

As Europe’s largest economy falters, the implications ripple across the continent. With sluggish industrial growth and weakening demand for German goods, the European Union faces mounting challenges in restoring post-pandemic economic vitality.