The German government has revised its gross domestic product forecast, predicting only 0.3% growth in 2025. Economy and climate minister Robert Habeck described the situation as serious, highlighting that Germany is facing stagnation despite some positive signs like increased credit demand.
This new GDP estimate is a significant decrease from the previous projection of 1.1% growth for this year. The International Monetary Fund and the federal Bundesbank have also adjusted their forecasts, expecting 0.3% and 0.2% growth, respectively. In contrast, the association of German Industry foresees a 0.1% contraction in 2025, marking the third consecutive year of decline.
Recent annual GDP data revealed a 0.2% contraction in Germany’s economy in 2024, following a 0.3% decline the year before. Despite sluggish quarterly GDP figures, the country has managed to avoid a technical recession so far.
Habeck attributed the downward revision of the GDP forecast to various factors, including the inability to fully implement growth initiatives due to the premature end of the government’s term and uncertainties surrounding the upcoming election. Geopolitical concerns, such as the return of U.S. President Donald Trump and potential tariffs on European nations, were also cited as contributing factors.
Looking ahead, the German ministry for the economy and climate anticipates slow economic growth in the near term due to geopolitical uncertainties and uncertainty about the new government’s economic direction. However, they expect the economy to gain momentum as inflation decreases, real incomes increase, and economic conditions become clearer.
Habeck mentioned a forecast of 1.1% GDP growth for 2026. Germany is preparing for a federal election on Feb. 23, following the dissolution of the ruling coalition in November.
Habeck and Finance Minister Jörg Kukies have both highlighted structural issues in the German economy, such as labor shortages, bureaucratic hurdles, and insufficient investment. They emphasized the need for increased investment and less restrictive fiscal policies to stimulate growth.
A preliminary report on Germany’s fourth-quarter GDP is expected soon. The country’s statistics office recently reported a 0.1% contraction in the economy for the last quarter of 2024.
The economic report also forecasts an average inflation rate of 2.2% for the year. Germany’s consumer price index had dipped below the European Central Bank’s 2% target but has since risen back up.
