37

Germany’s economy continues to face significant challenges as unemployment levels remain high and economic growth slows. The nation’s unemployment rate stood at 6.2% in February 2025, matching both expectations and the rate from January. According to the Bundesagentur für Arbeit, Germany’s unemployment rate has not changed, with 2.9 million people currently unemployed. This marks a smaller rise of 5,000 from the previous month, which was better than the 15,000 increase that analysts had predicted.

Struggles in the Manufacturing Sector

Germany’s manufacturing sector has been particularly hard-hit since the pandemic, with job losses increasing steadily. These struggles come as the country grapples with weak demand and a gloomy economic outlook. Several factors are weighing down the economy, including persistently high inflation, rising interest rates, and higher energy costs. In addition, Germany faces fierce competition from China, which has further eroded consumer confidence.

One of the most concerning issues facing Germany’s economy is the growing risk of deindustrialisation. Many industrial groups are moving their operations abroad, seeking better investment opportunities, higher liquidity, and more favorable business prospects. As these companies leave, the risk of deindustrialisation increases, which could have long-term consequences for the economy.

Retail Sales Show Signs of Recovery

On a more positive note, German retail sales showed signs of recovery in January 2025. Sales rose by 0.2%, following a 1.6% decline in December 2024. This growth exceeded analysts’ expectations, who had forecast no change in retail sales. The increase was driven mainly by food sales, which rose by 1.5%. However, non-food retail sales dropped by 0.2%, and e-commerce sales saw a sharp decline of 4.2%.

Despite these declines, annual retail sales still showed growth. Retail sales rose by 2.9% year-on-year in January, up from 2.8% in December. Food sales grew by 1.5%, while non-food sales climbed 3.7%. In a particularly positive sign, online sales saw a substantial surge of 11.5% due to high demand in the e-commerce sector.

Slower Economic Growth in Late 2024

Germany’s economic growth showed signs of slowing in the final quarter of 2024. The country’s GDP shrank by 0.2%, according to the final estimates from the Federal Statistical Office. This marks a decline from the 0.1% growth seen in the third quarter of 2024 and met market expectations.

The contraction was mainly due to a decrease in net trade. German exports fell by 2.2%, while imports rose by 0.5%. Household consumption increased slightly by 0.1%, which was lower than the 0.2% growth recorded in the previous quarter. Government spending also slowed, rising by just 0.4%, down from a more substantial 1.5% increase earlier in the year.

Despite the overall decline, some sectors showed positive signs. Fixed investments rebounded in the fourth quarter, increasing by 0.4% after a 0.5% decline in the previous quarter. This rebound was mainly driven by gains in construction investment, though other sectors like forestry, agriculture, fishing, and manufacturing showed further declines.

Yearly Performance and Future Outlook

Looking at the year-over-year performance, Germany’s GDP declined by 0.2% in the fourth quarter of 2024. This is a slight improvement from the -0.3% contraction seen in the previous quarter, aligning with market expectations. While the economy is not experiencing severe contraction, the overall trend shows that Germany is still struggling with weak demand and external challenges.

The country’s economy is expected to continue facing challenges in the coming months. Inflation remains high, and consumer confidence remains fragile due to rising interest rates and the uncertain global economic situation. Additionally, Germany’s manufacturing sector will likely continue to face difficulties, especially as industrial groups move abroad in search of better opportunities.

The Risk of Deindustrialisation

One of the most pressing issues for Germany’s economy is the risk of deindustrialisation. As manufacturing jobs are lost and companies move operations to other countries, the economy could face long-term consequences. This shift could result in a decrease in manufacturing output and a loss of high-paying jobs. It could also reduce Germany’s position as a global leader in industrial production.

The risk of deindustrialisation is especially concerning as Germany is home to some of the world’s most prominent manufacturing companies. If these companies continue to relocate abroad, it could lead to further job losses and a weaker economy. The government will need to find ways to support the manufacturing sector and prevent further job losses in this important area.

Conclusion

Germany’s economy remains under pressure as it deals with high unemployment, sluggish growth, and the risk of deindustrialisation. While retail sales have shown some positive signs, the overall outlook remains uncertain. The country’s manufacturing sector continues to struggle, and external factors like inflation, energy costs, and competition from China are complicating the situation. With GDP shrinking in the final quarter of 2024 and weak demand continuing to burden the economy, Germany will need to take decisive action to avoid further decline. The government will need to focus on stabilising the economy, supporting key sectors like manufacturing, and boosting consumer confidence.

For more information on Germany’s economy and the latest financial updates, visit Financial Mirror.