A German economic research institute has revised its forecast for the current year, now expecting a flatlined economy, with a growth rate of 0 per cent. The institute had previously predicted a decline of 0.1 per cent. For 2026, the forecast remains unchanged at a growth rate of 0.9 per cent, with real economic output expected to be nearly one per cent higher than in the pre-Corona year of 2019.
The slight upswing in the coming year is attributed to companies gradually adapting to new geopolitical circumstances, as well as the eight interest rate cuts by the European Central Bank providing a boost to the economy and government spending programs for defence and infrastructure increasing overall demand. However, the impact of these government spending programs on the capital stock and the production capacity of the economy remains uncertain.
According to the chief economist of the Handelsblatt, Bert Rürup, the moderate correction to the previous forecast is mainly of a technical nature, with the strong first quarter having a significant impact on the overall result for the year. He also cautions against reading too much into the strong start, given the unpredictable nature of international trade policies under US President Donald Trump.
The research institute notes that some measures in the German government’s “Sofortprogram” are in the right direction, but not without significant burdens for the economy. For example, the planned minimum wage increase to 15 euros and the pension plans of the ruling coalition would increase social contributions and thus labor costs. There is no plan to limit the contribution explosion in the health and long-term care insurance sectors. The institute’s economists express concern that some government statements seem more driven by party ideology than a realistic understanding of the situation, with the gravity of the situation not yet fully apparent to all government members.