Economic institutes adjust forecast amid trade headwinds
Germany’s leading economic institutes have slightly upgraded their 2025 growth forecast, now projecting 0.2% expansion for Europe’s largest economy, according to sources familiar with the matter. The previous estimate from April had pegged growth at just 0.1%.
While the revision is modest, it reflects cautious optimism in a challenging economic landscape shaped by U.S. trade policies and sluggish domestic momentum. The same institutions maintained their 2026 forecast at 1.3% and introduced a 2027 forecast of 1.4% growth for the first time.
Government spending expected to boost recovery
Chancellor Friedrich Merz, who assumed office in May, has pledged a revival of Germany’s stagnant economy through increased spending on infrastructure and defense. Analysts anticipate these measures will begin to support growth in 2026 and beyond, although their impact has yet to be felt in the short term.
Despite the promises, economists remain concerned about the slow implementation and limited scope of reforms. The institutes are urging the government to pursue deeper structural changes to future-proof the economy and boost competitiveness.
Trade war weighs heavily on export sector
Germany’s export-heavy economy continues to feel the strain of the global trade war initiated by the United States. While previous projections accounted for tariffs on steel, aluminum, and automobiles, the latest estimates now include a broader 15% tariff on additional goods.
As a result, Germany remains the only G7 nation to post economic contractions in each of the past two years. In Q2 of this year, GDP shrank by 0.3% compared to the previous quarter, largely due to declining U.S. demand and preemptive buying linked to tariff expectations.
Rising unemployment signals deeper concerns
The ongoing economic weakness has spilled into the labor market. In August, the number of unemployed Germans surpassed 3 million — a level not seen in over a decade. While public spending may offer some relief in the medium term, labor market pressures are likely to persist in the near future.
Meanwhile, the OECD has trimmed its own forecasts for Germany, now expecting GDP growth of 0.3% in 2025 and 1.1% in 2026, both down by 0.1 percentage points from earlier projections.
The updated joint report from the five economic institutes will be presented to the German government on Thursday. The federal economy ministry is expected to integrate these projections into its official autumn forecast.
