The biggest challenge for Europe’s biggest economy will be a slowdown in growth due to labor shortages, German Economy Minister Robert Habeck said on Wednesday after Berlin cut its forecast for this year, Reuters reported.

The government expects the economy to grow by 0.2 percent this year, well below the previous forecast of 1.3 percent, as weak global demand, geopolitical uncertainty and persistently high inflation dampen hopes for a quick recovery.

With about 700,000 unfilled jobs, Germany’s potential economic growth has fallen to 0.7 percent from about 2 percent in the 1980s and will fall further to 0.5 percent if the country fails to address the problem, Habeck said.

“We are running out of hands and brains,” Habek told a news conference to launch the government’s 2024 economic report, adding that unfilled jobs would grow due to an aging population.

Official estimates show that Germany’s aging society will have a shortage of seven million skilled workers by 2035.

“It’s not just skilled workers anymore,” he added.

Incentives for retirees and immigration

Providing financial incentives for people who would like to work longer and more flexibly in old age was one of the solutions proposed in the government’s report.

Reviewing unemployment benefits for some recipients was another way to address the problem, Habeck said.

More than half of Germans think it’s not worth working after the government’s planned increase in social benefits and child benefits, a survey showed in September.

About 2.6 million people between the ages of 20 and 30 in Germany have no professional qualifications, Habeck said.

Social security reforms and aggressive labor market reforms introduced nearly 20 years ago are credited with lifting Germany to international competitiveness after the recession of 2003 and 2004.

But Germany will not be able to cover the labor shortage without migration, Habeck said, adding that the country must become more immigrant-friendly, with faster visa procedures, more language courses and digital access to German companies abroad.

Berlin has introduced several laws to make the country more attractive to migrant workers, such as shortening the path for foreigners to citizenship, speeding up visas and recognizing foreign qualifications in the labor market.

However, not everyone in Germany is happy with the prospect of increased immigration. Support for the nationalist party Alternative for Germany (AfD) has reached a record high and is the second most popular party in the country in the polls.

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