The German economy is expected to experience a moderate upswing, according to the latest forecast from the Ifo Institute. The organization has revised its growth projections for 2025, predicting a 0.3% increase and a 1.5% growth in 2026.
The Ifo Institute’s chief economist, Timo Wollmershäuser, attributed the revised forecast to the country’s economic crisis having reached its low point in the winter half-year and the anticipated fiscal measures of the new federal government. The institute noted that the economy had already shown a 0.4% growth in the first quarter of 2025, driven mainly by advanced exports to the US. Additionally, private consumption and investments had also picked up and the mood among businesses had brightened.
Wollmershäuser believed that the growing optimism among companies was partly due to the hope that the new government’s economic policies would bring an end to the economic stagnation and a resolution to the trade dispute with the US.
The new federal government plans to expand infrastructure and defense spending, as well as introduce measures such as accelerated depreciation, tax cuts, lower net tariffs and a higher commuter allowance. The Ifo Institute estimates that these measures will have a 10 billion euro impact in 2025 and 57 billion euro in 2026, leading to a 0.1 and 0.7 percentage point increase in growth, respectively.
However, the institute also identified risks in the US trade policy, stating that the already imposed import tariffs, if left unchanged, would dampen the economy’s growth by 0.1 and 0.3 percentage points in 2025 and 2026, respectively. A resolution to the trade dispute could lead to higher growth, while an escalation could even lead to a new recession.
The Ifo Institute’s inflation forecast for 2025 and 2026 stands at 2.1 and 2.0 percent, respectively, while the unemployment rate is expected to stabilize, with the jobless rate rising to 6.3 percent in 2025 and slightly decreasing to 6.1 percent in 2026.