The official figures of the German Statistical Office have not yet been published, but all analysts agree on the same gloomy estimates: 2023 is a year of stagnation for the German economy and it will close with a slightly negative growth index. But no impressive changes for the better are expected in 2024 either. Typical was the recent statement on Welt TV by Moritz Kremer, chief economist of the state-owned LBBW bank in Baden-Württemberg: “There is no point in arguing about whether we are at plus 0.2% or minus 0.2%, the bottom line is that the German economy remains stagnant.”

The reasons are considered well-known and given: Due to high inflation, German consumers appear to be particularly restrained in their spending, while due to economic stagnation internationally, German exports, which have always been the driving force of the German economy, are burdened. But when domestic demand and export performance weaken at the same time, where will growth come from?

On top of that, the ambitious “green” transformation of the German economy preached by the coalition government in Berlin – and especially the Green Party – is costing a lot of money. As for energy prices, they remain high and in fact often force international business groups to suspend investment plans in the German market, to eventually prefer non-EU countries with more attractive investment incentives, such as the USA and China.

The disputed court verdict

As if all this were not enough, the latest decision of the Supreme Federal Constitutional Court on the budget adds to the uncertainty. “It’s a huge burden on the German economy,” says Thomas Gitzel, chief economist at VP Bank. “Government interventions are urgently needed to spark growth, but after the Constitutional Court’s ruling, cuts may be launched, which would only have negative consequences for the economic recovery.”

For his part, Carsten Brzeski, chief economist at ING, believes that the Karlsruhe verdict causes an additional, double risk for the German economy: First, it raises the risk of cuts in the state budget and, second, it increases political uncertainty. It is recalled that recently the Constitutional Court, in a landmark decision, deemed unconstitutional the supplementary budget for the year 2021 and especially the subsequent inclusion in the Climate Protection Fund of funds amounting to 60 billion euros, which were originally allocated to combat the consequences of the pandemic, but without ultimately being absorbed.

In a first reaction, Finance Minister Christian Lindner from the Liberal Party (FDP) announced that as of January 1, state subsidies for energy prices will be ended, while at the same time 17 billion euros are urgently requested for the 2024 budget. The Karlsruhe verdict seems to “freeze” all the ambitious investment plans of the Minister of Economy Robert Hambeck for climate protection. From there alone, Germany will lose a growth rate of up to 0.5%, the ministry’s experts estimate. However, Habeck himself insists that other financing solutions must be found.

0.8% growth for 2024?

Even before the decision of the Court was announced, the economic forecasts of the European Commission spoke of a growth of 0.8% in Germany in 2024. This is the lowest rate among the member states of the eurozone. A similar forecast by the OECD foresees just 0.6% for the largest economy of the eurozone, while the average of the 38 member states of the international organization is 1.4%. The German government’s official forecast remains at 1.3% for 2024 (and 0.4% this year), which experts now consider unrealistic.

Isabel Koske, an economist at the OECD, estimates that “in Germany, the energy crisis had a more serious impact than in other countries, as industry is the main contributor to economic growth, while dependence on Russian natural gas was greater.” What is needed, she argues, is now to “resolve the budget crisis as soon as possible, in order to restore the confidence of businesses and households”, with spending cuts, an increase in revenues, but also an amendment to the legislative framework for the “brake of of debt” which essentially prohibits new borrowing, with very few exceptions.

Deutsche Bank’s forecast is also pessimistic. As Stefan Schneider, an analyst at DB Research, estimates, “the result of the decision of the Constitutional Court is that in 2024 the German economy will shrink by 0.2%.”

The “bets” of the German economy

Speaking recently at a banking forum in Berlin, Moritz Sularik, professor of economics at Sciences Po Paris and the University of Bonn and president of the Kiel Institute for the World Economy, said that Germany had made three “big bets” in previous decades, which did not they now seem to be paying off.

“The first bet,” Sularik said, “was about supplying natural gas from Russia as cheap energy for industry. The second bet was China’s economic miracle as a lever to boost German exports. The third bet is based on Pax Americana, a kind of outsourcing of national security into American hands.”