Germany’s economic recovery remains sluggish, according to a new autumn forecast released by the Institute for Economic Research (IW), a research body closely associated with employers. The IW has revised downwards its spring forecast for 2025, anticipating stagnation or zero growth compared to the previous year.
Following three years of recession and stagnation, the institute now projects a modest economic uptick in 2025, forecasting a growth rate of one percent relative to the prior year. However, the report underscores that the German economy will essentially remain stagnant in 2025. Real gross domestic product and the number of employed individuals are expected to remain at the levels observed in 2024.
The report cites ongoing disruption in German foreign trade, attributed to geopolitical shifts and a confrontational US trade policy impacting global trade flows. Consumer spending is predicted to remain below its potential due to muted employment expectations, despite inflation normalizing. Investment activity is also expected to remain subdued, influenced by a range of uncertainties prompting a cautious approach. Further improvement is anticipated for 2026, but the institute predicts this will not constitute a genuine economic upswing.
Remarkably, the level of employment has remained surprisingly stable. Economists at the IW forecast approximately 46 million employed individuals for the average of 2025, mirroring the previous year’s figures. This level is expected to be sustained into 2026. Nevertheless, changes are occurring within the labor market; while the manufacturing sector and temporary employment agencies have experienced a loss of 96,000 social insurance-obligated positions in the first half of 2025, the public and social service sectors have seen a net increase of 103,000.
The registered unemployment rate is projected to increase to an average of 2.955 million individuals in 2025, representing an unemployment rate of 6.3 percent. The IW notes that intended reforms to unemployment benefits are unlikely to yield noticeable positive effects on the labor market until 2026, with limited initial impact on unemployment figures.