Germany will avoid stagnation in 2025 after two consecutive years of recession and will grow slightly, before a sharper rebound in 2026, according to updated government forecasts presented this Wednesday. However, the recovery will be fragile amid an industrial crisis.
Germany’s gross domestic product is expected to grow by 0.2% this year, Economy Minister Katherina Reiche announced at a press conference. The latest forecasts, made in April during the previous Government of Olaf Scholz, predicted stagnation. Slight improvement in German economic activity, which had fallen by 0.9% in 2023 and 0.5% in 2024, but doubts persist about the long-term recovery.
Chancellor Friedrich Merz’s ruling coalition, formed with the conservative parties (CDU-CSU) and the Social Democrats (SPD), which took power in early May, is trying to restore significant momentum to Europe’s largest economy. “The German economy has stagnated since 2019 (…) Germany runs the risk of being left behind,” warned the Minister of Economy.
Domestic demand becomes the engine of recovery
In the second half, “the outlook remains modest”, according to her, due in particular to US customs duties, which aggravate the current crisis in the manufacturing sector. Despite the agreement signed with Donald Trump, Washington’s “unpredictable trade policy” constitutes one of the main risks to the return of growth, according to a ministry statement.
By 2026, the government expects GDP to rise 1.3%, up from 1.0% in previous estimates. Growth would be 1.4% in 2027. In particular, the driver of the recovery will not be exports, the traditional pillar of GDP growth, but rather domestic demand, “in particular public and private consumption, as well as investments.”
In 2026 and 2027, “much of the growth” will come from hundreds of billions of euros invested in infrastructure and defense, according to the conservative minister. But “this impulse will only take effect if investments are made quickly” and if “obstacles regarding reforms are removed,” he moderates.
Source: BFM TV
