Growth Nightmare: German Government Slashes Growth Projections, Experts Warn of More Recession

Growth Nightmare: German Government Slashes Growth Projections, Experts Warn of More Recession

The German government has significantly lowered its expectations for the economic outlook. On Friday, Economy Minister Habeck reduced the forecast for the current year to a mere 0.3 percent, a drastic drop from the 1.6 percent growth expected in the fall for 2025.

Moreover, the German government will also revise its forecast for the upcoming year, according to the Handelsblatt. For 2026, the Habeck Ministry now expects a growth of 1.1 percent, a half a percentage point less than in the fall.

However, the German industry looks at the current year with a more cautious gaze. The BDI predicts a decline in economic performance, which would mark a third consecutive recession in the country’s history, a novelty for the Federal Republic of Germany.

The German economy is expected to shrink by 0.1 percent, the BDI predicts, but only in the event that Trump does not impose tariffs on the EU. In the case of tariffs, the BDI expects a more significant decline in Germany’s economic performance.

Paradoxically, the poor prognosis opens up more room for additional debt. The Handelsblatt notes that the debt brake allows for the additional assumption of 2.1 billion euros in new debt under these conditions.

This could enable one of the projects of the coalition to be implemented before the election, with the highest priority given to it: The coalition wants to transfer 3 billion euros to Ukraine in this legislative period. The SPD wanted to suspend the debt brake for this, but the Greens and FDP rejected this plan. The lowered economic forecast now creates the possibility for Germany to take on much higher debt in favor of Ukraine, without officially suspending the debt brake.

Investments in Germany, in infrastructure, housing, education and digitalization have been put off by the federal governments in different compositions for decades, the BDI sees in high energy prices a central cause of the decline of the German economy, alongside the lack of investment.