German Economy Forecast

BERLIN (Reuters) – The German economy is projected to grow by only 0.1% in the coming year, according to forecasts from the German Economic Institute IW, which were exclusively obtained by Reuters on Thursday.

The stability in the service sector is barely enough to offset the ongoing declines in the industrial and construction sectors, as noted by IW, an economic institute aligned with employer interests.

IW Chief Economist Michael Groemling stated, "This is no longer just a cyclical downturn, but a severe structural crisis."

According to IW forecasts, the economy is set to contract by 0.2% this year, significantly lower than the 0.8% expected in the euro zone.

This continued economic weakness is increasingly impacting the labor market, with experts forecasting the unemployment rate to rise to 6.2% in 2025 from the 6.0% anticipated for 2024.

The collapse of Germany's ruling coalition is likely to exacerbate economic difficulties in the upcoming months. IW's report highlights that the governmental vacuum in Germany is leading to paralysis and uncertainty.

Groemling emphasized, "The upcoming government must not waste time in restoring Germany's competitiveness." This restoration should include corporate tax reform, incentives for extended working hours, investments in infrastructure and defense, and a significant reduction in unnecessary bureaucracy.

The industry is still reeling from geopolitical conflicts, with no imminent improvement expected. Furthermore, Donald Trump's recent election victory in the U.S. raises concerns about a potential trade war with Germany's primary trading partner.

IW warns that from 2025 to 2028, Germany could experience a total economic output loss of approximately 180 billion euros, attributed to export losses and declining domestic investments.