Following a sharper-than-initially-estimated contraction in the German economy during the second quarter, economic advisor Veronika Grimm has expressed skepticism regarding a swift recovery.
“The renewed decline in economic performance is not a positive sign. We are unlikely to see growth in the current quarter either. Germany is likely to stagnate in 2025” Grimm told the Funke Media Group newspapers.
Grimm urged policymakers to address structural issues, stating, “Currently, almost all important reforms are being blocked, due to resistance from both the SPD and segments of the CDU/CSU. This is hindering the creation of economic momentum and leading to substantial new borrowing being directed towards consumption-led government spending”. She explained that this borrowing is partially used to finance increasing expenditures within the statutory pension insurance system. “Instead, reforms are needed that would significantly curb the growth of social spending in the medium term” she added.
The outlook for a sustained economic recovery appears bleak. “Beyond excessive regulation, high corporate tax burdens and rapidly escalating social spending, subdued labor market prospects and a weakening wage dynamic are also dampening private consumption. There is limited momentum visible within the service sector either” the economist stated.
Whether a sustained recovery can materialize in 2026 remains questionable under these conditions. “The federal government needs to commit more decisively to economic policy” Grimm insisted. She believes that current government policies are, at best, creating a short-term boost through debt-financed investments.
Grimm’s comments follow newly released figures from the Federal Statistical Office, which indicate that the German economy contracted more sharply in the spring than previously reported. The country’s Gross Domestic Product (GDP) decreased by 0.3 percent compared to the first quarter, according to revised data. Initial estimates from the statistical authority in Wiesbaden had indicated a 0.1 percent decline for the period of April to June 2025.