Germany's powerhouse economy comes to a standstill

It is the slowest-growing economy in the euro zone, with industrial production falling five months in a row

Germany started the year with Berlin's streets choked with tractors and farmers blaring horns in furious protest at proposed budget cuts. Then train engineers walked off the job to demand better pay, leaving commuters and carloads of freight stranded, and the country angry and gridlocked.

The same could be said for the state of the German economy. In 2023, it contracted 0.3 per cent, official figures showed last week, making it not only the largest economy but also the slowest growing among the 20 countries using the euro. Industrial production has fallen five months in a row.

"The economy is at a standstill in Germany," said Federation of German Industries president Siegfried Russwurm. "We don't see any chance of a rapid recovery in 2024."

Since it was rebuilt after World War II, Germany has been Europe's main driver of economic growth, becoming an industrial powerhouse known for vast factories and fine-tuned engineering.

But now its automakers must compete with relatively cheap electric cars from China, and it vies with the United States to attract tech giants. There is a growing realisation that Germany has not been successful in updating its industry with sufficient flexibility and digital know-how to remain competitive.

As the economy sputtered in 2023, the government was nearly paralysed by bickering among members of the three parties that make up Chancellor Olaf Scholz's ruling coalition. Then came a budget crisis in November, causing the government's popularity to plunge in polls.

Many of those disputes were over how to fill a €17 billion (S$24.8 billion) gap in the budget after the country's highest court in November threw out the previous spending plan. That decision was driven by the country's so-called debt brake, a law enshrined in its Constitution to keep public deficits low.