Germany's economy is on track to shrink for a second straight year

BERLIN (AP) — Germany's government said Wednesday that its economy, Europe's biggest, is on track to shrink for a second consecutive year — underlining the unpopular administration's troubles as it heads into a difficult election year.

The new forecast that gross domestic product will shrink by 0.2% this year compares with the government's prediction in April of 0.3% growth and brings it into line with economists, who also have forecast a slight contraction. The German economy shrank by 0.3% in 2023.

The government forecast growth of 1.1% next year and 1.6% in 2026.

Vice Chancellor Robert Habeck, who is also the economy minister, said that the German economy hasn't seen powerful growth since 2018 as the country's structural problems have been joined by wider global challenges.

“In the middle of the crises, Germany and Europe are squeezed between China and the U.S., and must learn to assert themselves,” he said in a statement.

Habeck argued that the government has tackled many of Germany's problems at home — securing its energy supply, speeding up planning procedures, trimming bureaucracy and trying to address a shortage of skilled workers.

The German Chamber of Commerce and Industry said that such measures need to be implemented quickly and more reforms are required to encourage investment. Its chief executive, Martin Wansleben, said that Germany has only once before had two successive years of recession — in 2002 and 2003, when the government launched a series of welfare state reforms — and that GDP is only half a percentage point above its level before the COVID-19 pandemic.

“There has never yet been such a prolonged phase of weakness in the German economy,” he said.

Chancellor Olaf Scholz's three-party coalition government has seen its popularity plunge over nearly three years in office. It has become notorious for constant infighting, for instance over next year's budget. The center-right opposition leads polls before a national election scheduled for September, and the far-right Alternative for Germany also has performed strongly in recent state and European Parliament elections.

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This version corrects the year for which 1.6% growth is forecast to 2026.