From Boom to Bust: How can Germany Restart its Economic Engine?

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The German economy contracted in 2023, due to persistent inflation, high energy prices and weak foreign demand. Industrial activity, household income and government expenditure all declined while gross domestic product (GDP) shrank by 0.3%. Current forecasts indicate marginal growth in the short to medium term. In addition, the unwinding of a decade’s long property boom has resulted in falling house prices, increasing insolvencies in the construction industry, and fears of long-term stagnation in the commercial property sector.

Germany also faces the costs associated with tackling multiple transitions – derisking from China, supporting Ukraine, progressing the green transition (without Russian gas) and an aging society. All will impose significant risks and costs on the German economy in the years ahead. How can the German economy adapt to these challenges? What should be the reform priorities in Berlin over the next decade? And how will a slowing economy impact the domestic political situation in Germany?