Forget this week’s minor decrease in the UK inflation number. 

The most important European data release was the confirmation from Germany that, during 2024, its economy contracted for the second consecutive year.

Europe’s largest economy shrank by 0.2% during 2024 – on top of a 0.3% contraction in 2023.

Now it must be stressed that this was a very early estimate from Germany’s Federal Statistics Office and that the numbers may be revised higher in due course. That health warning is especially appropriate this time around because, very unexpectedly, the figures suggest the economy contracted during the final three months of the year and most economists had expected a modest expansion.

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If unrevised, though, it would confirm that Germany is suffering its worst bout of economic stagnation since the Second World War.

The timing is lousy for Olaf Scholz, Germany’s chancellor, who faces the electorate just six weeks from now.

Worse still, things seem unlikely to get better this year, regardless of who wins the election.

Germany, along with the rest of the world, is watching anxiously to see what tariffs Donald Trump will slap on imports when he returns to the White House next week.

Germany, whose trade surplus with the United States is estimated by the Reuters news agency to have hit a record €65bbn (£54.7bn) during the first 11 months of 2024, is likely to be a prime target for such tariffs.

Aside from that, Germany remains beset by some of the problems with which it has been grappling for some time.

Because of its large manufacturing sector, Germany has been hit disproportionately by the surge in energy prices since Russia invaded Ukraine nearly three years ago, while those manufacturers are also suffering from intense competition from China. The big three carmakers – Volkswagen, Mercedes-Benz and BMW – were already staring at a huge increase in costs because of having to switch to producing electric vehicles instead of cars powered by traditional internal combustion engines. That task has got harder as Chinese EV makers, such as BYD, undercut them on price.

Other German manufacturers – many of which have not fully recovered from the COVID lockdowns five years ago – have also been beset by higher costs as shown by the fact that, remarkably, German industrial production in November last year was fully 15% lower than the record high achieved in 2017.

German consumer spending, meanwhile, remains becalmed. Consumers have kept their purse strings closed amid the economic uncertainty while a fall in house prices has further depressed sentiment. While home ownership is lower in Germany than many other OECD countries, those Germans who do own their own homes have a bigger proportion of their household wealth tied up in bricks and mortar than most of their OECD counterparts, including the property-crazy British.

Consumer sentiment has also been hit by waves of lay-offs. German companies in the Fortune 500, including big names such as Siemens, Bosch, Thyssenkrupp and Deutsche Bahn, are reckoned to have laid off more than 60,000 staff during the first 10 months of 2024. Bosch, one of the country’s most admired manufacturing companies, announced in November alone plans to let go of some 7,000 workers.

More of the same is expected in 2025.

Volkswagen shocked the German public in September last year when it said it was considering its first German factory closure in its 87-year history. Analysts suggest as many as 15,000 jobs could go at the company.

Accordingly, hopes for much of a recovery are severely depressed.

As Jens-Oliver Niklasch, of LBBW Bank, put it today: “Everything suggests that 2025 will be the third consecutive year of recession.”

That is not the view of the Bundesbank, Germany’s central bank, whose official forecast – set last month – is that the economy will expand by 0.2% this year. But that was down from its previous forecast of 1.1% – and growth of 0.2%, for a weary German electorate, will not feel that different from a contraction of 0.2%.

And all is not yet lost. The European Central Bank is widely expected to cut interest rates more aggressively this year than any of its peers. Meanwhile, one option for whoever wins the German election would be to remove the ‘debt brake’ imposed in 2009 in response to the global financial crisis, which restricts the government from running a structural budget deficit of more than 0.35% of German GDP each year.

The incoming chancellor, expected to be Friedrich Merz of the centre-right CDU/CSU, could easily justify such a move by ramping up defence spending in response to Mr Trump’s demands for NATO members to do so. Mr Merz has also indicated that policies aimed at supporting decarbonisation will take less of a priority than defending Germany’s beleaguered manufacturers.

But these are all, for now, only things that may happen rather than things that will happen.

And the current economic doldrums, in the meantime, will only push German voters to the extreme left-wing Alliance Sahra Wagenknecht or the extreme right-wing Alternative fur Deutschland.

Benjamin Netanyahu has claimed Hamas has backtracked on an earlier understanding of the ceasefire agreement, which is awaiting the approval of the Israeli government.

The Israeli prime minister said the group was objecting to part of the agreement which would give Israel the ability to veto the release of certain Palestinian prisoners.

Hamas was trying to dictate which Palestinian prisoners would be released, he said.

Follow live: Gaza ceasefire deal

“Among other things – contrary to a specific clause that grants Israel the veto power over the release of mass murderers who are symbols of terrorism, Hamas is demanding to dictate the identities of these terrorists,” the prime minister’s office said in a statement.

It said Mr Netanyahu has told Israeli negotiators to stand firm on the earlier agreement. Hamas is yet to respond.

Any deal will need to be approved by Mr Netanyahu’s security cabinet and then his government.

Since the agreement has been announced at least 32 people have been killed in heavy Israeli bombardment in Gaza, medics reported.

Strikes continued into Thursday morning, flattening houses in Rafah in southern Gaza, Nuseirat in central Gaza and in northern Gaza, local residents said.

The ceasefire deal does not come into force until Sunday.

The announcement comes after weeks of painstaking negotiations in Doha against the backdrop of a war in Gaza that has left tens of thousands of Palestinians dead and many more injured and displaced from their homes.

Much of the densely-populated territory has been razed to the ground as Israel launched a ground offensive following the Hamas attacks on 7 October 2023 which left 1,200 people dead and around 250 people taken hostage.

Read more:
A timeline of events in more than a year of war
Faces of 94 hostages who still haven’t returned home
What does the agreement say?
The war in numbers

What’s in the deal?

The deal outlines a six-week initial ceasefire phase that includes a gradual withdrawal of Israeli forces from central Gaza and the return of Palestinians to north Gaza, the Reuters news agency reported, citing an official briefed on the agreement.

Hamas will release 33 hostages, including all women, children and men over the age of 50, the agency said.

In return for the release of the hostages, Israel will free between 990 and 1,650 Palestinian prisoners and detainees.

Israel will release 30 Palestinian detainees for every civilian hostage and 50 Palestinian detainees for every female Israeli soldier that Hamas releases.

There will also be a surge of humanitarian aid allowed into Gaza as part of the agreement, which requires 600 aid trucks to be allowed into Gaza each day.

Negotiations over a second phase of the agreement are to begin on the 16th day of phase one and are expected to include the release of all remaining hostages, including male Israeli soldiers, a permanent ceasefire and the complete withdrawal of Israeli forces.

A third phase is expected to include the return of the bodies of the dead hostages and the beginning of Gaza’s reconstruction, supervised by Egypt, Qatar and the UN.

Analysis: This deal wouldn’t have happened without Trump

Shortly after the ceasefire deal was announced, Hamas’ acting Gaza chief Khalil al-Hayya said in a televised address that Israel failed to achieve its goals in the Palestinian territory.

He also vowed Hamas will neither forgive nor forget Israel’s actions in Gaza.