## Drivers of Germany’s Growth Downturn

_IMF Working Papers, June 5, 2026_

## Source details

**Canonical URL:** [Drivers of Germany’s Growth Downturn](https://www.imf.org/en/publications/wp/issues/2026/06/05/drivers-of-germanys-growth-downturn-576616)

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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

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### 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**
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_Source: https://www.imf.org/en/publications/wp/issues/2026/06/05/drivers-of-germanys-growth-downturn-576616_