Germany will act as a drag on growth in Europe until at least 2030, as it faces pressure to address a declining workforce and sluggish investment, according to a report by ratings agency Scope seen by Reuters on Monday.
The agency sees Germany’s growth potential at 1.0% in the medium term compared with 1.5% for the euro zone as a whole, as accumulating costs related to the COVID-19 pandemic, the war in Ukraine and the energy crisis weigh on public finances.
By the end of 2024, the German economy is forecast to be around 1.2% larger than at the end of 2019, before the pandemic hit, compared with 5.7% for the euro area, the agency said.
“The sluggish longer-term growth outlook contrasts with the likelihood that Europe’s largest economy will experience a mild recession at worst in 2023, a better outcome than expected by most a few months ago,” Scope senior analyst Julian Zimmermann said.
The Berlin-based and Europe-focused ratings agency said Germany faces structural challenges to its economy, including a shrinking number of people of working age, estimated to decline by around 0.8% annually between 2023 and 2030, and “persistent underinvestment coupled with slow project implementation”, even as the country strives to transition to a more digital, green economy.
“These challenges provide the backdrop for Germany’s current weak economic performance,” Zimmermann said, adding that Scope forecast a 0.2% contraction for the German economy this year.
German Chancellor Olaf Scholz’s governing coalition has announced plans to reform immigration laws to attract more skilled workers, and has also pledged legislation to cut red tape on planning, research and development.
The government said last month it expected 0.2% growth this year.