Germany to drag on European growth this decade - Scope ratings agency

Reuters

Published Feb 06, 2023 09:11AM ET

BERLIN (Reuters) - Germany will act as a drag on growth in Europe until at least 2030, as it faces pressure to address a declining workforce and sluggish investment, according to a report by ratings agency Scope seen by Reuters on Monday.

The agency sees Germany's growth potential at 1.0% in the medium term compared with 1.5% for the euro zone as a whole, as accumulating costs related to the COVID-19 pandemic, the war in Ukraine and the energy crisis weigh on public finances.

By the end of 2024, the German economy is forecast to be around 1.2% larger than at the end of 2019, before the pandemic hit, compared with 5.7% for the euro area, the agency said.

"The sluggish longer-term growth outlook contrasts with the likelihood that Europe's largest economy will experience a mild recession at worst in 2023, a better outcome than expected by most a few months ago," Scope senior analyst Julian Zimmermann said.

The Berlin-based and Europe-focused ratings agency said Germany faces structural challenges to its economy, including a shrinking number of people of working age, estimated to decline by around 0.8% annually between 2023 and 2030, and "persistent underinvestment coupled with slow project implementation", even as the country strives to transition to a more digital, green economy.

"These challenges provide the backdrop for Germany's current weak economic performance," Zimmermann said, adding that Scope forecast a 0.2% contraction for the German economy this year.