Germany set for zero progress in 2024 as all different G7 economies get well

Germany looks likely to be the worst performing major developed economy in the world for a second year in a row.

In its latest World Economic Outlook report, the International Monetary Fund (IMF) predicted that there will be no growth at all in Germany this year.

That follows a 0.3 per cent contraction last year and cements the country’s status as ‘the sick man of Europe’.

Every other country in the Group of Seven major industrialised nations – which is made up of the US, Canada, UK, Germany, Italy, France and Japan – is growing.

The IMF raised its growth forecast for the UK for this year to 1.1 per cent having predicted just 0.5 per cent in April. Britain’s growth is also expected to accelerate, to 1.5 per cent, in 2025 ‘as falling inflation and interest rates stimulate demand’.

The report warns of ‘persistent weakness in manufacturing’ in Germany and Italy. But while Italy is benefiting from Europe’s £1.7 trillion Covid-19 recovery fund, Germany ‘is experiencing strain from fiscal consolidation and a sharp decline in real estate prices’.

Germany’s once-mighty industrial sector was for a long time the driving force of the eurozone’s most powerful economy.

But it was heavily reliant on cheap Russian gas and has been plunged into crisis since the invasion of Ukraine in 2022 sent energy costs soaring.

Household spending also remains depressed while political instability is taking its toll with Chancellor Olaf Scholz’s government riven by conflict. 

The country’s huge car-making sector is in crisis amid the switch to electric vehicles, a market where it is battling to compete with cheap imports from China.

The IMF’s latest forecasts were unveiled at its annual meeting

in Washington. The intergovernmental group left its outlook for global growth unchanged for this year at 3.2 per cent and downgraded from 3.3 per cent to 3.2 per cent for next year.

On the brighter side, IMF chief economist Pierre-Olivier Gourinchas said the world was overcoming the cost-of-living crisis that has been squeezing consumers over the past couple of years.

‘It looks like the global battle against inflation has largely been won,’ Gourinchas said yesterday, ‘even if price pressures persist in some countries’.

With inflation now ‘hovering close to central bank targets’, interest rates should start coming down, he suggested.

Gourinchas said it was a ‘major achievement’ that this had been achieved without spurring a global recession.

But he also warned that ‘downside risks are increasing and now dominate the outlook’.

Gourinchas pointed to the risk of conflict in the Middle East pushing up oil prices as well as interest rates remaining high for too long and ‘undesirable trade and industrial policies’ – code for steep trade tariff barriers, a policy favoured by US presidential candidate Donald Trump.