Current:Home > reviewsGermany’s economy shrank, and it’s facing a spending crisis that’s spreading more gloom -InfinityFinance
Germany’s economy shrank, and it’s facing a spending crisis that’s spreading more gloom
View
Date:2025-04-18 07:20:07
FRANKFURT, Germany (AP) — Germany’s economy shrank in recent months and business confidence is still in the dumps, according to figures released Friday, while the government is struggling to overcome a budget crisis that threatens to exacerbate problems in what was already the world’s worst-performing major developed economy.
Europe’s largest economy shrank 0.1% in the July-to-September quarter as inflation eroded people’s willingness to spend, Germany’s statistics office confirmed Friday.
Meanwhile, the closely watched Ifo institute survey of business optimism showed a tiny uptick to 87.3 for November from 86.9 in October but remained well below its July level.
The downbeat figures come as the country’s budget crisis raises the possibility of deep spending cuts next year. A court ruled last week that previous spending violated constitutional limits on deficits, forcing Chancellor Olaf Scholz’s government to put off a final vote on next year’s spending plan.
Economists say the budget uncertainty and the possibility of reduced spending worsen the challenges facing the stagnating German economy as it struggles to adapt to long-term challenges such as a shortage of skilled workers and the loss of cheap natural gas from Russia after the invasion of Ukraine.
Germany is the only major economy expected to shrink this year, according to the International Monetary Fund, which foresees a decline of 0.5%.
Officials are searching for ways to fill a 60 billion euro ($65 billion) budget hole over this year and next after the country’s Constitutional Court ruled that the government could not repurpose unused funding meant to ease the impact of COVID-19 into projects to fight climate change.
The court said the move violated rules in the constitution that limit new borrowing to 0.35% of annual economic output. The government can go beyond that in an emergency it didn’t create, such as the pandemic.
The ruling has tied Scholz’s quarrelsome, three-party coalition in knots as the cabinet tries to comply with the decision, raising uncertainty about which government programs will be cut.
Analysts say about 15 billion euros had already been spent in this year’s budget, some of it on relief for consumers’ high energy bills.
Finance Minister Christian Lindner has proposed invoking an emergency again this year to bring spending in line. But the bigger problem is the 35 billion to 40 billion euros that the government can no longer borrow and spend next year.
That could mean cuts in the climate and transformation fund, which spends on projects that reduce emissions from fossil fuels. Those include renovating buildings to be more energy efficient; subsidies for renewable electricity, electric cars and railway infrastructure; and efforts to introduce emissions-free hydrogen as an energy source.
It also includes support for energy-intensive companies hit by high energy prices and for computer chip production.
Scholz’s office says he will address parliament next week on the budget crisis.
“There doesn’t seem to be a strong growth driver in sight,” said Carsten Brzeski, chief eurozone economist at ING bank.
He termed the uptick in the Ifo survey of business managers as “a bottoming out” rather than a rebound.
“This is why we expect the current state of stagnation and shallow recession to continue,” Brzeski said. “In fact, the risk that 2024 will be another year of recession has clearly increased.”
veryGood! (6688)
Related
- McKinsey to pay $650 million after advising opioid maker on how to 'turbocharge' sales
- Trump's Truth Social set to go public after winning merger vote
- Shop Amazon's Big Sale for Clothing Basics That Everyone Needs in Their Wardrobe STAT
- Here's How Jamie Lee Curtis Reacted To Chef José Andrés' Kitchen Mishap While Filming For His New Show
- Federal Spending Freeze Could Have Widespread Impact on Environment, Emergency Management
- Carlee Russell pleads guilty and avoids jail time over fake kidnapping hoax, reports say
- Kristin Cavallari’s Boyfriend Mark Estes Responds to Criticism Over Their 13-Year Age Gap
- Infant's death leaves entire family killed in San Francisco bus stop crash; driver arrested
- US wholesale inflation accelerated in November in sign that some price pressures remain elevated
- Bruce Willis and Emma Heming celebrate 15-year wedding anniversary: 'Stronger than ever'
Ranking
- Brianna LaPaglia Reveals The Meaning Behind Her "Chickenfry" Nickname
- Fired high school coach says she was told to watch how much she played 'brown kids'
- 2025 Audi A3 sedan first look: A subtle refresh, expressive customizable headlights
- Caitlin Clark has fan in country superstar Tim McGraw, who wore 22 jersey for Iowa concert
- 'Squid Game' without subtitles? Duolingo, Netflix encourage fans to learn Korean
- Kamala Harris to tour blood-stained building where 2018 Florida school massacre happened
- Prosecutors charge a South Carolina man with carjacking and the killing of a New Mexico officer
- Recent assaults, attempted attacks against Congress and staffers raise concerns
Recommendation
What do we know about the mysterious drones reported flying over New Jersey?
It's not too late! You can still join USA TODAY Sports' March Madness Survivor Pool
Fill up your gas tank and prepare to wait. Some tips to prepare for April’s total solar eclipse
The market for hippo body parts is bigger than you think. Animal groups suing to halt trade
Finally, good retirement news! Southwest pilots' plan is a bright spot, experts say
Man facing gun and drug charges fatally shot outside Connecticut courthouse. Lawyer calls it a ‘hit’
Elizabeth Berkley Pays Homage to Showgirls With Bejeweled Glam
How Olivia Culpo Is Switching Up Her Wellness Routine Ahead of Christian McCaffrey Wedding