The German government is expecting the economy to shrink by 0.2 percent this year, revising its previous forecast of 0.3 percent growth, Vice Chancellor and Minister of Economics Robert Habeck said on Wednesday.
Habeck said Germany has made progresses in tackling short-term factors that hindered economic output, such as high inflation, high interest rates, and high energy costs.
However, long-term structural issues, including a significant shortage of skilled labor and inadequate infrastructure investment, continued to impede growth, according to Habeck.
The German economy shrank 0.1 percent in the second quarter this year, following an increase of 0.2 percent in the first quarter. It was previously estimated that the momentum of economic recovery could pick up in the second half of this year.
The estimation has failed to materialize according to the monthly report about the economy published by the German Central Bank, Bundesbank, last month.
Weak domestic demand played a leading role in dragging down the recovery. While high financing costs dampened demand for industrial goods and production plans, private consumption remained weak as consumers chose to save more despite the rise of real income, according to the report.
New orders in the manufacturing sector went down by 5.8 percent in August, compared to the previous month, provisional figures published by the Federal Statistical Office showed on Monday.
Business sentiment among German companies remains gloomy. The ifo Business Climate Index, an indicator of business confidence in Germany, plunged to 85.4 points in September, the fourth decline in a row.
Germany's economy shrank by 0.3 percent in 2023.
Germany's economy set to contract in 2024
Germany's economy set to contract in 2024
