The German Institute for Economic Research (DIW Berlin) reported a slight uptick in its economic barometer, which rose to 86.4 points in December, a 2.7-point increase from November. However, the index remains well below the neutral 100-point mark, indicating below-average growth. This suggests the German economy is ending 2024 on a weak note despite minor signs of recovery. Economic output in the fourth quarter is expected to have declined slightly, with domestic demand faltering and exports failing to provide momentum. Political and economic uncertainties, both domestic and international, continue to weigh heavily on sentiment. Germany’s internal challenges include the ongoing political vacuum following the collapse of the Ampel coalition, with a new government unlikely to form before spring. Internationally, the re-election of Donald Trump as U.S. President adds to the uncertainty, particularly regarding trade policy. “Trump’s return raises significant questions about U.S. economic and foreign policy directions,” said DIW’s head of economic research, Geraldine Dany-Knedlik. “Tariff increases on certain EU imports are a real risk. However, the European Central Bank’s interest rate cuts may provide some relief to the German economy in the coming year, alongside a slight recovery in the eurozone.” German industry remains a key point of concern. Industrial production declined again at the start of the quarter, and the business climate has further deteriorated. Companies are increasingly pessimistic about both current conditions and future prospects. While order books saw a minor boost—largely thanks to a major shipbuilding contract—sectors like mechanical engineering and automotive manufacturing reported declines in backlog orders. “Domestic demand continues to be weak,” noted DIW economist Laura Pagenhardt. “Companies remain cautious, holding off on significant decisions until the economic policy landscape becomes clearer next year.” The services sector shows early signs of improvement, with the Purchasing Managers’ Index for services rising in December. However, consumer sentiment remains muted despite a significant drop in inflation. This is partly due to challenges in the labor market, particularly job losses in manufacturing, which are dampening private consumption. Unemployment, while still low, reflects the broader economic weakness. “Germany is currently experiencing both economic and political paralysis,” said DIW economic expert Guido Baldi. “The hope is that in 2025, Germany can address these blockades and capitalize on its numerous strengths.” The coming year will be crucial for Germany to resolve its domestic challenges and navigate global uncertainties, particularly in trade and industrial policy. While signs of stabilization exist, the path to sustained recovery will require decisive action from both policymakers and industry leaders. Source: DIW Berlin