The German economy expects harsh winter after weak growth this summer

Germany’s economy faces a tough winter, hit by its manufacturing sector, with gross domestic product not growing as much as expected in the third quarter and the country fearing that Donald Trump’s return to the White House will exacerbate its trade difficulties.

Between July and September, the gross domestic product of Europe’s largest economy rose by 0.1%, 0.1 points lower than the first estimate issued by the federal statistics agency Destatis at the end of October.

The risk of a technical recession, i.e. a second consecutive decline in GDP, after a 0.3% decline in the second quarter, is certainly ruled out for the time being.

But Finance Minister Jörg Kukies warned in an interview with the German Handelsblatt newspaper on Friday that “we must not underestimate the danger of the ongoing economic crisis in Germany”.

“A winter recession is looming,” said ING analyst Carsten Brzeski, noting that the figures released aren’t a sign of recovery but rather confirmation that the German economy is mired in recession.

The recession is partly due to a crisis in the competitiveness of German industry against the backdrop of high energy prices and falling global demand, while industry still accounts for more than 20% of GDP.

The industrial federation warned on Friday that industrial production could fall by 3% this year, the third consecutive decline, noting that recovery in 2025 is not on the horizon.

The country’s top industrialists have announced a series of social plans, and the auto sector, which embodies Germany’s economic success, has been hit hard, including by Volkswagen.

As for German exports, which traditionally constitute a pillar of growth, they are losing their competitiveness and suffering from Chinese and American protectionist tendencies.

Between July and September, German exports fell sharply by 1.9%, and by 0.3% year-on-year.

The German economy is expected to shrink by 0.2% this year, according to the latest government forecasts.

Otherwise, the eurozone will grow by 0.8% in 2024, according to Brussels.

Will 2025 be the year of recovery?

The government is betting on growth of 1.1%, hoping for an improvement in consumption, but less optimistic experts such as the German economic sages see GDP growth of no more than 0.4%.

Overall consumer spending supported growth between July and September, increasing by 0.3% compared to the previous quarter, representing a slight improvement.

“The best thing is that private consumption is finally developing a little better,” said Jens-Oliver Nicklach, an expert at Landsbank Baden-Württemberg.

But figures from Destatis confirmed that the 0.8% increase in total consumption over the course of one year was due more to public spending than to household purchases.

However, inflationary pressures have not completely subsided, as evidenced by the rise in inflation to 2.0% in October on an annual basis, which may lead to a decline in consumer demand.

To stimulate growth sustainably, it’s necessary in particular to reduce the currently unusually high savings rate, according to estimates by the expert at the German Development Bank, Philipp Schwermeier.

The economic situation is likely to worsen as US President-elect Donald Trump takes office in the United States in January.

The German central bank president, Joachim Nagel, said that the tariff hikes that Donald Trump has promised to implement when he returns to the White House could cost Germany 1% of its GDP.

Added to that, future tax cuts and deregulation will indirectly affect competitiveness across the Rhine, according to Carsten Brzeski.

Finance Minister Jörg Kukies said Germany needed to improve skilled labor potential, tax incentives for investment, research, and energy prices and promote abolishing bureaucracy.

The bad situation is exacerbated by the unpopularity of German Chancellor Olaf Scholz’s government, which is expected to be punished at the ballot box in the early legislative elections on February 23, 2025.