Germany’s economy will grow less than expected this year, a closely-watched report has suggested, as the eurozone economy teeters on the brink of recession.

Europe’s largest economy will expand by only 0.7pc in 2024, according to the Ifo Institute, down from 0.9pc growth in GDP it predicted in December.

It comes after Germany’s highest court blocked Olaf Scholz’s plan to spend €60bn (£52.4bn) of emergency borrowing on green initiatives.

The climate spending package was found to be in breach of the country’s debt laws in November, forcing the chancellor to overhaul his budget.

Germany’s economy shrank by 0.3pc last year after it was hit by higher interest rates and elevated energy costs.

Meanwhile, the eurozone is on the brink of recession after data indicated business activity shrank in the fourth quarter, which follows a  0.1pc contraction in the third quarter of 2023.

Ifo head of forecasts Timo Wollmershäuser said: “Now that the German parliament’s budget committee has agreed on the federal budget, we estimate that it passed additional savings of just under €19bn. 

“Companies and households will carry a greater burden or receive less relief, and government spending will be cut. 

“That means the overall scope is roughly in line with what we estimated in our risk scenario for 2024 in December. The economic impact is also likely to be of a corresponding magnitude.”

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