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Germany slashes economic growth expectations ahead of February election

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Economy and Climate Action Minister and Greens Party chancellor candidate Robert Habeck arrives for the weekly federal government cabinet meeting on January 29, 2025 in Berlin, Germany.

Sean Gallup | Getty Images News | Getty Images

The German government on Wednesday slashed its gross domestic product forecast to just 0.3% growth in 2025.

The latest GDP estimate is sharply down from an October projection of 1.1% growth this year, but broadly in line with forecasts from other economic bodies. The International Monetary Fund earlier this month cut its outlook and now sees 0.3% growth for the German economy this year, while the federal Bundesbank in December said it was anticipating the GDP to increase by 0.2% over the period.

In contrast, the association of German Industry on Tuesday forecast the country’s economy will contract by 0.1% in 2025, in what would be the third annual decline in a row.

Annual GDP figures released earlier this month showed that Germany’s economy contracted by 0.2% in 2024, after already shrinking 0.3% in the previous year. Quarterly GDP figures have also been sluggish, but so far a technical recession, which is characterized by two consecutive quarter of contraction, has been avoided.

The domestic economy will likely initially only show weak development this year due to continuing geopolitical uncertainty and a lack of clarity about the economic and fiscal direction of the new government, the German ministry for the economy and climate said in a statement accompanying its 2025 economic report.

It envisaged that the economy will then pick up pace as inflation falls, real incomes rise and economic conditions become clearer.

Germany is headed for a federal election on Feb. 23, which is taking place earlier than originally planned after the country’s ruling coalition broke apart in November.

Echoing Finance Minister Jörg Kukies’ comments to CNBC last week, Economy and Climate Minister Robert Habeck said in a statement that Germany suffers from structural problems. He pointed to a shortage of laborers and skilled workers, exuberant bureaucracy and weak investment.

A preliminary reading of Germany’s fourth quarter GDP is due out Thursday. The country’s statistics office earlier this month said that, based on the information available at the time, the economy pulled back by 0.1% in the three months to the end of December.

The Wednesday economic report also pegged inflation as set to average 2.2% this year. Germany’s consumer price index had fallen back below the European Central Bank’s 2% target in late summer, but has risen again since.

This is a breaking news story. Please check back for updates.

Economics

GDP grew at a 2.3% pace in the fourth quarter, less than expected

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GDP grew at a 2.3% pace in the fourth quarter, less than expected

U.S. economic growth slowed a bit more than expected in the final three months of 2024, the Commerce Department reported Thursday.

Gross domestic product, a measure of all the goods and services produced across the sprawling U.S. economy during the period, showed that the economy accelerated at a 2.3% annualized pace in the fourth quarter. Economists surveyed by Dow Jones had been expecting an increase of 2.5% after growth of 3.1% in the third quarter.

The report closes out 2024 on a somewhat downbeat note, though growth held reasonably solid. For the full year, GDP accelerated 2.8%, compared to 2.9% in 2023. Thursday’s release was the first of three estimates the department’s Bureau of Economic Analysis will provide.

Growth held up largely on the backs of consumers who continued to spend briskly despite the ongoing burden of high prices on everything from homes to cars to eggs at the supermarket. While inflation is well off the boil from its mid-2022 40-year high, it remains a burden for households, particularly those on the lower end of the income scale.

Consumer spending rose at a robust 4.2% pace and, as usual, amounted to about two-thirds of all activity. Government spending also provided a boost, accelerating at a 3.2% level.

Trade was a drag on growth in the period, with imports, which subtract from the GDP calculation, off 0.8%. Exports also declined 0.8%. Gross private domestic investment slumped by 5.6%, shaving more than a full percentage point off the topline number. An easing in inventories also cut nearly 1 percentage point.

In other economic news Thursday, initial unemployment claims totaled 207,000 for the week ending Jan. 25, a sharp decline of 16,000 from the prior period and well below the forecast for 228,000. Continuing claims, which run a week behind, also fell, down 42,000 to 1.86 million.

The resilience of the U.S. economy and the relative deceleration in inflation has allowed the Federal Reserve to assume a patient stance on monetary policy. Though the Fed cut its key interest rate by a full percentage point in the last four months of 2024, officials have indicated that aggressive reductions are unlikely this year.

At the recently concluded Fed meeting, central bankers gave no indication that they are expecting cuts anytime soon, with Chair Jerome Powell insisting that he is in no hurry to ease.

Fed officials have been expressing some concern about whether the moves lower in inflation have stalled. Thursday’s report showed that the so-called chain-weighted price index, which measures prices and accounts for consumers substituting less expensive products for more costly items, increased 2.2% on the quarter, faster than the 1.9% move in Q3 but slightly below the 2.3% estimate.

However, the data also showed that consumers are dipping into savings to fund their purchases. The personal saving rate was 4.1%, down 0.2 percentage point from the prior quarter for the lowest level in two years.

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Economics

America’s foreign aid pause puts lives at risk

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THE SPRAWLING al-Hol camp in north-eastern Syria is part of a network of prisons holding tens of thousands of detainees and family members from Islamic State’s jihadist “caliphate”, which was smashed by America and its allies in 2019. Western securocrats have long worried that prisoners might break out and wreak bloody havoc, in Syria and abroad. Such fears have intensified given the turmoil after the fall of Syrian dictator, Bashar al-Assad, in December.

There could scarcely be a worse time for the Trump administration to order, as it did on January 24th, an immediate halt to almost all aid work—at al-Hol and around the world—pending a 90-day review to ensure foreign assistance aligns with America First principles. The only exceptions were aid for Israel and Egypt (mostly military) and “emergency food aid”.  Waivers could subsequently be issued on a case by case basis.

Chart: The Economist

America is by far the world’s largest aid donor, spending $68bn in fiscal 2023, the most recent year. The US accounts for about 40% of all humanitarian assistance provided by governments. The announcement of an abrupt cutoff of much of this money hit humanitarian agencies like an earthquake. American-funded projects wobbled and some risked collapse.

The affected work included the distribution of antiretroviral drugs for people infected with HIV under a scheme known as PEPFAR, credited with saving some 26m lives since 2003; medical services for Rohingya refugees in Bangladesh; mine-clearing in South-East Asia; reconstruction of bombed-out energy infrastructure in Ukraine; pro-democracy work in Russia’s near-abroad; and much more.

“Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?” the state department said.

Among the casualties were groups working at al-Hol, home to about 40,000 Islamic State (IS) fighters and their relatives, among them European women who married combatants and bore their children. The Kurdish-dominated Syrian Democratic Forces (SDF), which controls north-eastern Syria, is in charge of security at the camps. But aid workers speak of a free-for-all within. Women loyal to IS hold sway with guns and train a new generation of ideologues. The perimeter is pierced by tunnels, allowing weapons in and inmates out. Killings are commonplace. Children are sold as fighters. “It’s more an IS base than a prison,” says a Western researcher.

Blumont, the American firm that manages al-Hol (and a smaller camp called Roj) under a state department contract, says its teams left the camps when they received the stop-work order, and arranged for other groups to provide “very much reduced basic services”. Some humanitarian groups said they were issuing termination letters for their staff. On January 27th Blumont received a 14-day waiver and said its staff returned the next day.

Amid chaos and an outcry that countless lives were at risk, Marco Rubio, the secretary of state, later widened exemptions to include “life-saving humanitarian assistance”. This includes “medical services, food, shelter, and subsistence assistance, as well as supplies and reasonable administrative costs.” Programs would not be funded if they involved abortion, family-planning, transgender surgeries or other aid deemed not to be life-saving.

Even with this concession, aid groups say confusion abounds. “Does work on clean water count as life-saving aid?” asked an official in one large ngo. Some projects were being closed because of the uncertainty. The status of PEPFAR is unclear.

Waivers apparently still need to be issued case-by-case. Whether the government has the staff to process them quickly is another question. Few of the state department’s political appointees have yet arrived. USAID, the main American development agency, has furloughed hundreds of senior staff and contractors. One spoke of a “sad and apocalyptic” atmosphere.

The state department says the full halt was necessary because “it is impossible to evaluate programs on autopilot”, arguing that those running them have little incentive to give details if the money keeps flowing. It claims to have already saved about $1bn, halting things such as the delivery of condoms to Gaza, sex education globally and clean-energy programmes for women in Fiji. The department offered no details to support its $1bn estimate.

Al-Hol offers just one example of how stopping work suddenly for such dubious reasons is an avoidable act of self-harm. “Without aid, it’s difficult to maintain the security of the camps,” says Ali Rahmoun, a spokesman for the Syrian Democratic Council, the political wing of the SDF. “The jihadists won’t just be a problem for Syria but for the region and even Europe.”

Americans would be in danger, too. Shamsud-Din Jabbar, a 42-year-old US army veteran, rammed his Ford pickup into a crowd in New Orleans on New Year’s Day, killing 14. He was killed by police. In his vehicle they found IS’s black flag. 

Stay on top of American politics with The US in brief, our daily newsletter with fast analysis of the most important political news, and Checks and Balance, a weekly note from our Lexington columnist that examines the state of American democracy and the issues that matter to voters.

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Economics

German GDP, fourth quarter 2024

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The Frankfurt skyline at dusk on a November day.

Helmut Fricke | Picture Alliance | Getty Images

The German economy shrank by 0.2% quarter-on-quarter in the three months ending in December, according to preliminary data released by Germany’s statistics office Destatis on Thursday.

The figure is adjusted for price, calendar and seasonal variations.

Analysts polled by Reuters had been expecting the gross domestic product (GDP) to decline by 0.1%.

Household and government consumption expenditures increased, but exports were “significantly lower” than in the previous quarter, Destatis said.

“After a year marked by economic and structural challenges, the German economy thus ended 2024 in negative territory,” it added.

Thursday’s figures compare to a 0.1% rise of the country’s GDP in the third quarter of last year. Germany’s economic performance has long been sluggish, with quarterly GDP readings mostly hovering around the flatline in the past two years. The economy has however managed to avoid a technical recession.

On an annual basis, the German economy contracted in both 2023 and 2024, by 0.3% and 0.2% respectively.

Some respite is expected in 2025, with the German government on Wednesday revealing its forecast of 0.3% growth for the year — still a notably downward revision from it’s previous estimate of 1.1% growth.

“The diagnosis is serious,” Robert Habeck, economy and climate minister, said during a press conference Wednesday, according to a CNBC translation.

He added that the German economy has been stagnating for a long time. He pointed to both internal and global political uncertainty as factors leading to the cut to expectations, and added that the outgoing government had been unable to fully implement its growth plans as its term was ending early.

A federal election in Germany is slated for Feb. 23, which is earlier than originally planned due to the break up of the country’s ruling coalition late last year.

Habeck also said that there were structural issues weighing on the German economy, echoing comment made by the Finance Minister Jörg Kukies last week.

“The structural weaknesses of our economy absolutely have to be addressed,” Kukies told CNBC. “It’s really important that we embark on a path of economic growth.”

This is a breaking news story, please check back for updates.

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