Olaf Scholz didn’t want to think about politics during his summer holiday. He was “looking forward to quiet times, to being able to exercise, enjoy nature, read books and just spend a lot of time with my wife,” he told the German media.
If the German chancellor did risk a peek at the news on Tuesday, the calm of his three-week break may have shattered. Germany’s economy shrank unexpectedly in the second quarter of the year, leaving the country teetering on the brink of recession and his party struggling to regain trust.
Economists had predicted growth of 0.1 per cent in the second quarter of 2024. Instead, Germany’s GDP shrank by 0.1 per cent. After the 2023 recession, recovery in the first quarter of 2024 was sluggish and temporary. Looking at the figures, Klaus Wohlrabe from the Ifo Institute for Economic Research says, “The German economy is stuck in crisis.”
This is bad news for Europe’s largest economy and for Olaf Scholz. In the chancellor’s traditional summer press conference, he had announced that he would seek re-election next year despite dire approval ratings and even though surveys suggest only a third of his fellow Social Democrats (SPD) want him to.
Scholz’s party is heading for a drubbing in regional elections this September in Saxony, Thuringia, and Brandenburg. Polls suggest that in these three states of the former East Germany both the hard Right AfD and the Left populist Bündnis Sahra Wagenknecht (BSW) are likely to perform extremely well. In all three states the AfD could be the largest party and the BSW looks set to get more than twice the vote share of the ruling SPD in both Saxony and Thuringia.
Scholz hopes to “turn things around” before the federal elections in September 2025, showing the public that his government had “made the right decisions” for Germany. But this will be very difficult with economic figures that can’t be explained away with a nod to the international situation.
In contrast to Germany, the Eurozone overall showed solid growth, increasing by 0.3 per cent in the second quarter of this year. France is right in the mainstream with 0.3 per cent growth and Spain even managed 0.8 per cent.
Scholz could argue that the German slump is caused by structural issues over which he has little control. As an export-orientated country, Germany is extremely sensitive to global economic trends. Its dependence on Russian gas, oil and coal inflated the effects of the energy crisis caused by the war in Ukraine. And around a quarter of a million German citizens leave the country every year, adding to an acute shortage of skilled labour.
But it’s unlikely that Germans will think that Scholz’s government is blameless. They are now in their third year in power; before that, Scholz was vice chancellor and finance minister under Angela Merkel. The decisions made by him and those around him have had consequences.
Despite the gas shortage, for instance, the Green energy minister Robert Habeck decided to switch off Germany’s last nuclear power plants in 2023. While people were struggling with high bills, the government drafted a controversial heating law to phase out the use of fossil fuels in private homes. Due to the public backlash, Habeck eventually admitted that he had “gone too far” and was forced to water down the legislation.
But the damage was done. Heat pump manufacturers had banked on an increase in sales and planned accordingly. In 2024, demand collapsed by 54 per cent with home owners unsure about the technology. Now, thousands of jobs are at risk in the sector.
Planned investment in Germany’s green transition stalled overall when the courts ruled last year that Scholz’s coalition had unlawfully re-allocated unused pandemic funds for climate projects. This blew a €60 billion hole into the public finances and further eroded confidence in the sector.
The list of economically harmful decisions made in Germany is long. There is Scholz’s approval for the EU’s planned ban on petrol and diesel engines from 2035, which will speed up the decline of the German car industry. Or his refusal to even consider loosening the “debt-brake”, a rule that prevents Germany from borrowing more than 0.35 per cent of GDP in new debt per year.
When he returns from holiday, Scholz will no doubt have thought of reasons why the decline of the country he runs isn’t his fault, but German voters won’t be fooled so easily. Scholz’s SPD is currently polling at 15 per cent, which would be its worst result in post-war history. News that the German economy is doing exceptionally badly is unlikely to bring voters back to those parties now running the country.