Germany's 2024 GDP growth forecast plummets

Germany’s GDP growth expectations for 2024 are expected to grow only 0.1%, down from a previous estimate of 1.3% as the country is stuck in “tricky waters,” according to German Economy Minister Robert Habeck.

Though the country dodged a technical recession in the second half of 2023, the fall of energy costs and inflation along with an increase in consumer spending power have not helped the overall economic crisis. Fiscal policymakers adopted a federal budget for the beginning of 2024, tightening its restrictive course—meaning companies and households will be impacted the most as government spending is cut.

The following indicators can hinder economic turnaround for the first half of 2024:

• Deteriorating order situation in all economic sectors
• Low order backlogs
• Ongoing strikes

The inflation rate is expected to continue to fall from 5.9% in 2023 to 2.3% this year and 1.6% in 2025—with gas and electricity prices expected to decrease for consumers. Inflation in labor-intensive service providers will fall slowly due to rising wage costs keeping up the pressure on prices.

"Consumer restraint, high interest rates and price increases, the government's austerity measures, and the weak global economy are currently dampening the economy in Germany and leading to another winter recession,” said Ifo's head of forecasts Timo Wollmershaeuser.

Yes, but: With the gradual easing of interest rates and inflation, economic output should accelerate towards the middle of the year, Wollmershaeuser added. Despite the economic downturn, Ifo’s forecast says the number of people in employment would rise to 46.1 million this year from 45.9 million in 2023, and reach a record 46.2 million in 2025. “Although a recovery is likely to set in from the spring, the overall momentum will not be too strong," said Stefan Kooths, head of economic research at the Kiel Institute for the World Economy (IfW). Economic output remains at similar levels to those before the pandemic, as productivity in Germany has remained stagnant since then. One flaw of the German economic model is the dependence on foreign demand for an outsize share of its growth, per Fitch Ratings. Greater domestic investment and honing more savings domestically would both reduce the reliance on global demand and increase productivity.

By the numbers:?Customers in Germany have averaged 16 days beyond terms, with 57% of credit professionals saying payment delays have stayed the same, per the FCIB Credit and Collections Survey. The most common causes for payment delays are customer payment policy (50%), billing disputes (38%) and cash flow issues (38%).

What FCIB Credit and Collections Survey respondents are saying:

• “Be knowledgeable about VAT and local laws related to factoring.”
• “The information provided varies in terms of average days late. There are some customers that are tied to Russia and that is why we are seeing delays.”
• “Follow up with the customer’s procurement and finance department as many times as necessary.”
• “Obtain financial statements on your customers and backstop sales with credit insurance.”?