ifo Institute Forecasts Near-Zero Growth

The German economy is not picking up steam. The ifo Institute forecasts only minimal growth in price-adjusted gross domestic product (GDP) of 0.2% for the current year. Expectations from the winter forecast have thus been lowered by 0.2 percentage points. There might not be an improvement – albeit slight – until 2026, when growth of 0.8% is expected. “The German economy is treading water. Despite a recovery in purchasing power, consumer sentiment remains subdued, and companies are also reluctant to invest,” says Timo Wollmershäuser, Head of Forecasts at ifo.

Industry in particular is suffering from weak demand and increasing international competitive pressure. At the same time, political uncertainties in both Germany and the United States are creating considerable risks. The new US administration has adopted an erratic and protectionist economic policy. Import tariffs already announced on goods from Mexico, Canada, and China and retaliatory tariffs are having initial negative impacts on the US and global economies. If tariffs on European products are additionally increased, this could hit German export business hard. There are also uncertainties as regards domestic politics. Although measures to strengthen infrastructure and defense are being discussed, it remains to be seen if and when they will be implemented.

According to ifo’s Head of Forecasts Wollmershäuser, this phase of uncertainty should soon be overcome: “Reliable economic policy is vital to creating confidence and stimulating investment. Companies need planning certainty, especially in view of the current challenges posed by structural change in industry.”