Germany on the brink: economic crisis and federal election in focus!

Germany on the brink: economic crisis and federal election in focus!

Early federal elections will take place in Germany on February 23, 2025. A central issue in the election campaign is the ongoing economic crisis, which has affected the country greatly in recent years. According to a report by the University of Paderborn German gross domestic product (GDP) shrank for the second year in a row in 2024 - a decline that was last observed in 2002 and 2003. The Faculty of Economics at the University of Paderborn is intensively analyzing the current situation.

The economic situation also has an impact on the political climate. Around 5.5 million people receive citizen's benefit, of which 1.5 million are unable to work. The discussion about citizens' money is heated, with proposals ranging from abolition to stricter requirements. 1.7 million unemployed people receive citizen's benefit at the standard rate, which has sparked additional debate about possible cuts. These cuts could potentially have adverse effects on the economy, experts warn.

Economic challenges

The recessionary development of the German economy is clearly reflected in the latest figures. Economic output shrank by 0.2 percent in 2024 compared to the previous year, and the unemployment rate rose to 6 percent, while the number of jobs with social security increased but remained highly industry-dependent. The daily news highlights that the consumption boom, which is often seen as a solution, has not materialized. Purchasing power has not recovered and the expected development in 2025 is subject to further uncertainty.

The forecasts for the coming year point to zero growth, which could also be influenced by political measures. The different economic policy approaches of the parties - the Union and the FDP focus on tax relief and less bureaucracy, while the SPD and the Greens are bringing a "Germany Fund" into play to promote investments - could be decisive for the coming months.

Rising costs and investments

The high energy prices represent a central problem. For small and medium-sized industrial companies in particular, the annual average electricity price fell to around 17 cents per kWh in 2024, which further increases the pressure on companies. Experts from the University of Paderborn note that high investments are necessary to expand the generation and network infrastructure. Forecasts also indicate a decline in electricity purchases over the next five years.

The EU emissions trading systems cover almost 40 percent of greenhouse gas emissions in Europe, giving companies the opportunity to reduce their emissions and trade allowances on the market. This strategy could help address high energy prices, but disagreement over economic reforms remains.

Another topic is tax relief, which, according to Prof. Dr. Jens Müller could find approval if they had a positive impact on jobs. In 2023, workers worked an average of 13.2 hours of paid overtime, further fueling the discussion about corporate taxation and the need for relief.

The outlook for 2025 is ambivalent: falling key interest rates from the European Central Bank could make debt easier, and building interest rates have already been reduced, which puts potential builders in a favorable position.

Overall, the economic situation in Germany remains tense as political parties prepare for the federal elections. The challenges are diverse, but the experts at the University of Paderborn and other economic analysts are working to find solutions to bring about a sustainable turnaround.