Germany

Despite a +3.1% recovery in 2021 and GPD expanding by +1.9% in 2022, Germany only reached pre-crisis GDP levels in early 2022, while the Eurozone aggregate already hit that milestone in late 2021. The German economy has barely grown since the Covid-19 setback but the government intends to revive the engine through a 10-point economic plan. The growth and opportunity act provides concrete impulses for growth and competitiveness, as well as funding that should make Germany more attractive as a business location, along with climate and transformation funds. The pact for planning, approval and implementation acceleration phases out more than 100 single regulations and the tax reform on electricity prices for industry will lower electricity prices. Announced fiscal measures will amount to around 2.5% of GDP.

However, it is unlikely to be enough for a miraculous rescue. Struggling with cyclical and structural issues, Germany is the only major economy that is expected to contract by -0.3% in 2023 and it will not recover until 2024 (+0.8%). GDP growth is expected at +1.6% in 2025. Next to dim short-term prospects, the medium-term outlook is also concerning. In addition to high energy costs, the headwinds for the German economy come primarily from weakening global demand, especially for highly cyclical goods such as cars, machine tools and chemicals. Moreover, lopsided global growth in services compared with goods is causing problems for the local economy. Germany is also currently struggling with structural challenges, including labor shortages, high energy costs, a heavy regulatory and tax burden, creeping digitalization and political uncertainty.

Insolvencies are again on the rise due to the reinstatement of insolvency laws after a temporary suspension and overall tighter financing conditions. They will, however, remain below 2019 levels despite a rebound in 2023 that would reach +22% y/y i.e. +3,210 firms to 17,800 cases. We expect the government to remain ready to act in a targeted way as it already did to rescue several hard-hit utilities.