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BERLIN (Reuters) – Germany’s long-awaited economic recovery has backfired, with three financial institutions revising their forecasts on Thursday.
Germany’s economy is expected to stabilize next year following a 0.3% contraction last year and a 0.2% contraction this year, the IfW Kiel Institute for the World Economy said on Thursday.
The agency cut its previous projection of 0.5% growth for 2025 from September.
“The German economy cannot stop stagnating,” the financial institution said in its report. “There are no clear signs that the economy is improving.”
In 2026, IfW Kiel predicts a growth rate of 0.9%, with a forecast of 1.1%.
“This year, the economy continues to cycle from quarter to quarter around zero and could shrink by 0.2% overall,” the German Institute for Economic Research DIW Berlin said in its new forecast.
In 2025, growth is expected to be at 0.2%, rising to 1.2% in 2026, DIW said, further reducing its forecast.
“We are seeing a strong mix of recession and structural issues,” said Geraldine Dany-Knedlik, DIW’s head of economic forecasting. “This has a major impact on the export manufacturing industry, which is considered the backbone of the German economy.”
In addition to the increase in energy and material costs and strong competition from China, high prices from the US President-elect Donald Trump loom, he said.
THE TIME OF TWO ECONOMICS
Germany will grow by just 0.4% next year if it fails to overcome structural problems but could achieve growth of 1.1% if the right fiscal policy is implemented, the Ifo Institute said on Thursday.
Due to uncertainty, the Ifo Institute presents two future financial scenarios. The financial institution had forecast growth of 0.9% in its forecast for September.
“At the moment, it is not clear whether the recession is a temporary weakness or a permanent and therefore painful economic change,” said Timo Wollmershaeuser, head of forecasting at Ifo.
According to Wollmershaeuser, tight monetary policy in Europe and in many of Germany’s export markets has contributed to the weakness in the industry that is weighing on the economy.
However, purchasing power has returned, and inflationary pressure, according to the economist, will continue in Germany.
In all cases, the Ifo Institute expects a rise of 2.3% in the coming year and 2.0% for 2026.
