Drivers of Germany’s Growth Downturn
IMF Working Papers, June 5, 2026
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- Drivers of Germany’s Growth Downturn
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Bibliographic details
- Authors: Harri Kemp
- Published: June 5, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229050623.001
Overview
- Germany experienced a pronounced recession during 2023–24, with real GDP contracting and growth falling notably behind the rest of the euro area.
- The paper uses four complementary approaches to systematically examine the underlying causes of the downturn.
Major quantitative finding
- About 60 percent of Germany’s growth underperformance was due to lower potential growth.
- About 40 percent reflected cyclical factors.
Broad-based expenditure impacts
- Nearly all major expenditure categories weighed on activity, with particular weakness in:
- Investment
- Exports
Production-side concentration
- The recession was concentrated in manufacturing and construction.
- Manufacturing and construction together accounted for the bulk of the growth gap relative to the euro area.
Productivity and labor dynamics
- The decline in output was driven primarily by falling productivity, especially in industry and construction.
- Reduction in hours worked was not the primary driver.
- Falling productivity partly reflected cyclical labor hoarding amid weak aggregate demand.
Structural amplifiers of the downturn
- Structural challenges amplified the cyclical downturn, including:
- Longer-term subdued productivity growth due to structural factors such as persistent underinvestment in public infrastructure, skills, and innovation as well as excessive red tape.
- Population aging.
- One-off adverse effects from the 2022 energy-price shock.
- Deteriorating external competitiveness (although the level of the current account surplus remains substantial).
Subject tags (from source)
- Economic sectors, Exports, International trade, Manufacturing, National accounts, Production, Productivity
Source: "Drivers of Germany’s Growth Downturn", Harri Kemp, June 5, 2026, IMF Working Papers.
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- Working Paper