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3 Jan, 2024 06:14

Germany poised to be relegated to fifth place among world’s biggest economies – report

The growth of the EU’s economic powerhouse has continued to slow as a result of the energy crisis
Germany poised to be relegated to fifth place among world’s biggest economies – report

Germany’s economy is expected to continue to slow in the coming years; the country is slated to relinquish its position as the fourth-largest economy, in nominal US dollar terms, to India in 2027, according to a new report by the Centre for Economics and Business Research (CEBR).

The research says Germany’s fall to fifth place will come as a result of its reliance on Russian energy to drive its manufacturing sector.

“The importance of the manufacturing sector means that Germany has been more exposed to supply-side headwinds in recent years, notably from the surge in global energy prices in 2022. Germany’s dependence on Russia for its energy supply exacerbated this issue,” CEBR wrote.

According to the report, exposure to the energy price shock has helped to fuel inflation in the EU’s largest economy. Prices rose by an expected 6.3% in 2023, down from the 8.7% price growth recorded in 2022, but still firmly above recent averages. “Elevated inflation has contributed to weakened spending power and has subsequently curtailed consumer activity. This has hit consumer-facing services significantly,” it said.

The country’s gross domestic product is expected to have shrunk 0.4% in 2023. “With the exception of the pandemic-induced decline in 2020, this represents Germany’s weakest growth performance since 2009,” CEBR wrote, noting that supply-side issues and weaker spending power both contributed to this decline in output. Another factor contributing to the contraction was the tighter interest rate environment. CEBR projected the German economy returning to growth in 2024, at a rate of 0.7%, with a further acceleration in 2025.

Beyond that, the report also said that global GDP will more than double, to $219 trillion by 2038, driven by the “continued expansion in previously underdeveloped economies as they catch up with and overtake the more traditionally rich countries.” Vietnam, Bangladesh and the Philippines were named as the fastest risers among the larger economies.

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