After receiving the report at the chancellery, Scholz said that Germany’s export-reliant economy was currently experiencing a weak phase due to tepid demand for its manufactured goods in key global markets.

“As things are a little lacking there at the moment, we are also noticing this,” Scholz said, before listing initiatives his government is taking to boost business activity. “But we have to make sure now that we get back on track and stimulate growth. That’s why we’re confident.”

The chancellor’s advisers said that a main reason for their less optimistic outlook was a sluggish recovery in the global economy, and especially in China. That will continue to be a drag on German exports next year and lead to a negative growth contribution from foreign trade, according to their report.

“Prompt economic policy decisions are needed to improve growth prospects,” Veronika Grimm, a member of the council, said in an emailed statement.

“Politicians must create suitable framework conditions,” she added. “It will not be enough to simply increase the volume of work, for example through qualified immigration or higher female participation in the workforce. Production potential can only be increased through strong investment.”

Read More: Germany Expects Weaker Rebound Next Year After 2023 Contraction

The council attributes this year’s contraction to the decline in domestic demand, largely due to a sharp fall in public spending at the start of 2023, a slump in foreign trade, and the tightening of monetary policy by the European Central Bank.

They expect Germany’s average annual inflation rate to be 6.1% this year, before a steep decline to 2.6% in 2024.

To help stimulate inward investment, the council called for a “massive expansion of digital and energy infrastructure and an acceleration of planning and approval processes.”

The ongoing transformation of the economy has become more difficult because of the tense geopolitical situation and the need to make supply chains more resilient, they added.