Germany’s economic rebound this year looked like a mirage. After a modest first-quarter uptick of 0.5 percent in GDP, the country slipped back into contraction in the following quarter, with a 0.1 percent drop. The Federal Statistical Office, Destatis, labeled the setback as a minor decline, yet it followed a 2023 finish with a 0.5 percent decrease. The new negative result is tied to weak investment in equipment and machinery and stagnation in construction, a sector that Chancellor Olaf Scholz has vowed to revive.
The quarterly GDP decrease came as a surprise to many analysts who had anticipated an improvement, even if slight. This weaker momentum in Germany stands in contrast to the trajectory of its main European Union partners. Across the euro area, growth averaged 0.3 percent in the second quarter, with Spain expanding by 0.8 percent and Ireland by 1.2 percent. France, typically watched as Germany’s closest economic benchmark within Europe, posted a 0.3 percent rise.
All of these dynamics feed into a broader climate of economic and political pressure on Scholz’s three-party coalition, consisting of the Social Democrats, the Greens, and the Free Democrats. With elections in 2025 approaching, and the opposition Conservative and far-right parties performing strongly in polls, the government has rolled out a package of measures aimed at boosting business activity. The goal is to achieve a long-term growth rate near 0.5 percent of GDP.
Housing Shortage
The independent panel of economists advising the government, popularly known as the Five Wise Men, has warned that the announced measures are unlikely to reverse the housing crunch unless the shortage of skilled workers in almost every sector is addressed and bureaucratic obstacles are removed.
The construction sector faces especially acute strain. When the current legislative session began in 2021, a top priority was the construction of 400,000 new homes each year to curb price pressures on rents and purchases. In 2022, the figure fell to around 300,000, and in 2023 it dropped to about 200,000. Forecasts from the Ifo Institute project a further decline to roughly 175,000 by 2026. A survey by ZDF, Germany’s public broadcaster, identifies affordable housing as the leading concern among Germans, underscoring the magnitude of the challenge.”