The German government has slashed its economic forecast, warning that output would shrink 0.4 per cent this year, while admitting it must overcome “major structural challenges” including a “desperate” shortage of workers.
Robert Habeck, economy minister and vice-chancellor, blamed the grim outlook for Europe’s largest economy on the energy crisis triggered by Russia’s full-scale invasion of Ukraine, a sharp rise in interest rates to tackle inflation and slowing global trade, while calling for an increase in skilled immigrants to bolster its ageing workforce.
“Companies are desperately looking for workers, craft businesses have to reject orders, and shops and restaurants have to limit their opening hours,” he said on Wednesday. “And it’s not just about skilled workers — we notice in every possible corner that we simply lack workers.”
“There are also geopolitical sources of conflict that increase uncertainty,” he said. “We are therefore emerging from the crisis more slowly than expected.”
Berlin’s economic outlook has worsened since it forecast in the spring that gross domestic product would expand 0.4 per cent this year.
However, Habeck predicted that the economy would rebound at the turn of the year, as rising wages and falling inflation are expected to boost household spending. He predicted that inflation would drop from 6.1 per cent this year to 2.6 per cent in 2024.
“The course has now been set for a sustainable economic recovery,” he said, forecasting growth of 1.3 per cent next year and 1.5 per cent in 2025.
The country’s surging energy bills, high inflation and weakening economy have eroded support for the three parties in Germany’s ruling coalition, which all lost votes in regional elections for Bavaria and Hesse last weekend as the far right Alternative for Germany gained ground.
Addressing the backlash against rising illegal immigration that has fuelled criticism of the government and increased support for the AfD, Habeck said a shortage of skilled workers was the country’s “most pressing structural problem”.
Making the case for more refugees in the country to join the workforce, he said: “I know that there are some reservations about it, and it is completely clear that we need better control over who comes into the country and that those who are not allowed to stay must leave quickly.”
Germany’s economy has contracted or stagnated for the past nine months and the IMF this week predicted it would be the worst-performing major economy this year, with output contracting 0.5 per cent before returning to tepid growth of 0.9 per cent in 2024.
Russia’s full-scale invasion of Ukraine hit Germany particularly hard because of Berlin’s high reliance on cheap oil and gas imports from Moscow that were interrupted by the war, triggering a surge in energy prices and a contraction of the country’s large industrial base.
Germany’s export-focused manufacturers have also suffered from faltering trade with China, Berlin’s biggest trading partner, while the country’s construction sector is reeling from a flurry of cancelled projects and insolvencies after being hit by rising financial and material costs.
Figures published earlier this week showed industrial production in Germany fell for the fourth consecutive month in August, lowering the sector’s output by more than 2 per cent from a year earlier and 12 per cent since the start of 2018.
Habeck said “excessive bureaucracy” was part of the problem. “One thing is clear: we need investments,” he said. “To do this, we have to remove obstacles to investment, clear out the jungle of bureaucracy and make things easier for entrepreneurs . . . Germany must no longer shackle itself.”