Germany strives for green boost to economic recovery as energy price pressure eases

The German economy’s recovery from the slump triggered by the coronavirus pandemic and the energy crisis is taking longer than expected, economy minister Robert Habeck said as he presented the government’s annual economic report for 2024. “We’re leaving the crisis slower than we were hoping,” Habeck said, adding that the government had adjusted its economic growth forecast from 1.3 percent down to 0.2 percent this year. The minister said there are several reasons for the slow recovery, including historically low global growth levels and lower demand for German exports, ongoing inflation and high interest rates that stall investments especially in the construction sector, as well as the war on Ukraine, which is entering into its third year at the end of this week.

However, Habeck stressed that the pressure of energy prices on companies caused by Russia’s weaponising of fossil fuel supplies had significantly waned in recent months, even if prices are still too high. Russian president Vladimir Putin “has failed with his attempt to throw Germany into an energy shortage and an economic catastrophe,” the minister said. Gas storages are filled in the second winter after Russia’s invasion and gas prices had fallen back to a level comparable to that before the outbreak of the war, he stated in parliament on Thursday, n-tv reported. “Germany has proven to be very resilient here,” Habeck argued, adding that the successful expansion of the country’s renewable energy share gives further cause for optimism.

In a joint declaration on the government’s economic report, Germany’s leading economic research institutes said the assessment was accurate and in line with observed trends. Driven by a downward trend in global oil prices, the institutes said energy supply should generally have dampening effects on prices in the near future. Economic research institute IW said the string of crises in the past four years had cost the German economy about 545 billion euros in losses, meaning the country took a bigger hit than comparable economies in the global market turmoil. The important sector of energy-intensive industries had suffered particularly during the energy crisis, which was compounded by a 155 billion euro shortfall of investments in the past years. High energy prices and other factors had also severely impacted consumption, which was reduced by 4,800 euros per capita in the crisis years, IW said.

Green Party minister Habeck said the country needs “a reform boost” to get back on a more solid growth path, adding that last year’s court ruling on the German debt ceiling continued to pose a challenge for the government’s recovery efforts. “Part of the truth is that Germany suffers from structural problems” that are becoming a challenge for its competitiveness as an industry location, he said. This included a lack of skilled workers, which in the longer run posed the greatest risk for sustained growth. This had to be addressed by targeted migration and other measures, he argued.

Moreover, companies required a comprehensive reduction of bureaucracy, meaning the federal government, the states, municipalities and the EU all had to cut red tape to facilitate companies’ own ability to recover and to spur private sector investments. The government’s proposed Growth Opportunities Act would be an important instrument in this regard, Habeck said. The law would provide incentives for investments in key technologies, such as batteries and semiconductors, and improve the rollout of renewable power and grid modernisation, the minister said. Moreover, the government was determined to improve environmental protection and social cohesion in its recovery plans, he added.