Germany's Economic Decline Sparks Turmoil and Geopolitical Challenges

Stagnant growth, rising populism, and global pressures threaten Germany's economic powerhouse.

- AJIT RANADE

Germany is the third-largest economy in the world with a nominal GDP of $4.7 trillion in 2024, as per the estimate of the International Monetary Fund. Its population is 84 million. The fourth-largest economy is Japan at $4.07 trillion with a population of 124 million. India is fifth with $3.9 trillion and 1.4 billion people.

Japan's population is shrinking by half a percent every year, while Germany's population has been rising at about 0.8 to 1 percent per year for the past few years. This is mainly due to the influx of immigrants, many fleeing wars in Ukraine, Africa, or Syria. But among the top five economies of the world (in nominal dollar terms), only Germany is stagnant compared to the level five years ago. The United States economy is 10 percent larger than the pre-pandemic level; even Japan is about 3 percent larger, China is about 25 percent bigger, and India by about 30 percent. Germany is close to zero. And for 2024 and 2025, its economy will shrink. This is a two-year recession.

It is a big geopolitical story for the third-largest economy and the world. It has already had political ramifications within Germany. The government led by Chancellor Olaf Scholz has fallen. It failed to get a vote of confidence from Parliament last month. This means there will be early elections in February instead of the scheduled one in September. The loss of the vote of confidence was inevitable after the three-party ruling coalition collapsed a month earlier.