German Economy Growth Forecast Cut To Near Stagnation

Germany's economy is expected to show minimal growth in 2025, with forecasts from leading institutes such as Ifo and IfW Kiel projecting GDP increases of only 0.1% to 0.2%, continuing a trend of stagnation following two years of contraction. Despite some improvement in business sentiment due to anticipated government stimulus, challenges like U.S. tariff policies and structural issues including demographic pressures and labor market inefficiencies weigh heavily on the outlook. The German government plans to deploy significant fiscal stimulus in 2025 and beyond, potentially boosting growth by up to 0.6 percentage points next year and supporting modest increases to around 1.3% in 2026 and just over 1% in 2027. However, experts warn that without fundamental reforms in labor costs, social security contributions, digitalization, and innovation tax policies, the stimulus may only provide temporary relief and risk prolonged economic paralysis. Unemployment is projected to rise slightly in 2025 before gradually declining through 2027, while inflation is expected to remain moderate. The overall consensus among economists is that Germany's economic recovery remains fragile and dependent on credible pro-growth policy implementation.