The German government has downgraded its economic growth forecast for 2024 to just 0.2 per cent, a major reduction from the previously projected 1.3 per cent. The revision, approved by the cabinet as part of the annual economic report, reflects concerns over weak global demand, geopolitical uncertainty, and persistently high inflation dampening prospects for a rapid recovery.

Amid these challenges, Economy Minister Robert Habeck is set to provide further details later in the day. The German economy contracted by 0.3 per cent in 2023 and is widely expected to enter another technical recession in the first quarter of this year.

A draft of the report highlights the formidable obstacles facing the German economy, including soaring inflation and resultant loss of purchasing power, alongside geopolitical tensions and anticipated interest rate hikes.

In line with the government's stance, Germany's economic advisers are also revising their growth forecast downwards for 2024. Ulrike Malmendier, an adviser, indicated alignment with the government's direction, with expectations pointing towards a decrease from the previously estimated 0.7 per cent.

The sombre outlook for Germany raises concerns regarding its standing as an industrial hub, particularly as the government navigates stringent fiscal regulations while seeking to attract investment and facilitate a costly transition towards sustainability.

The draft report underscores a planned "normalization" of fiscal policy in 2024, following a constitutional court ruling that compelled the coalition to implement significant budget cuts. Additionally, the government is anticipated to forecast a moderation in inflation from 5.9 per cent in 2023 to 2.8 per cent this year.

(With Reuters inputs)