Economists expect only minimal growth and warn that without deep structural reforms, any recovery could quickly fizzle out.
Even with the newly announced stimulus program, the prospects remain subdued. Leading economic research institutes forecast a short-term boost over the next two years, but medium-term expectations remain grim.
The Munich-based Ifo Institute, the Kiel Institute for the World Economy (IfW), the RWI in Essen, and the IWH in Halle have all downgraded their economic forecasts for this year and next. For 2025, they now expect only negligible growth of 0.1 to 0.2 percent—effectively stagnation.
Without reforms, stimulus risks being a flash in the pan
For 2026, economists expect growth between 0.8 percent (IWH) and at most 1.3 percent (Ifo and IfW)—less than hoped earlier in the year. According to the Ifo Institute, the unemployment rate could rise to 6.4 percent this year before gradually declining in the following years.
But Ifo President Clemens Fuest and chief economist Timo Wollmershäuser warned that without fundamental reforms, the debt-financed €500 billion package will remain little more than a temporary flare-up. “Growth will likely return to zero,” Fuest said. “There is even a risk of contraction. We face a shrinking workforce, rising pension and healthcare costs.”
Ifo warns: Tax hikes could deepen the crisis
Germany’s economy remains mired in crisis, after shrinking in both of the past two years. Tax increases, as floated by Finance Minister Lars Klingbeil and other SPD politicians, would be the wrong move, Fuest argued: “If we raise taxes, the contraction will accelerate.”
According to Ifo, even in 2026 the stimulus program will have less effect than initially expected. CDU and CSU leaders have also recently warned against new taxes.
Economists call for structural reforms instead of new debt
The reforms proposed by Fuest and his colleagues include faster digitalization and better tax incentives for innovation—alongside measures strongly opposed by the SPD and trade unions. “We need reforms in the labor market and labor costs,” Fuest said. “And above all, we must prevent social insurance contributions from rising steadily due to demographic pressures.”
For highly skilled workers, he added, strict dismissal protections are no longer necessary. “Taking on debt is the easy part,” Fuest noted. “The government must now show that it can also handle the hard part.”
The Ifo Institute is not alone in this assessment. Similar warnings came from the IfW Kiel and RWI Essen. “Structural competitiveness issues are not solved by expansive fiscal policy—they are merely obscured,” the RWI stated.
High costs, stagnation, and global risks weigh on Germany
Economists point to inadequate corporate investment as another major hurdle. RWI highlighted high energy prices, excessive bureaucracy, and lagging digital infrastructure as critical obstacles. “If the policy paralysis we’ve seen for years continues, Germany faces further stagnation and erosion of its position as a business hub,” Wollmershäuser warned.
Additional risks stem from U.S. President Donald Trump’s tariff policies, as well as Germany’s technological lag in key industries.
Unemployment expected to decline in the long run
According to the IWH, German exports have also lost momentum due to technological weaknesses and rising competition from Chinese products.
There is, however, some cautious optimism regarding unemployment. In August, the number of jobless exceeded three million for the first time in a decade, pushing the rate to 6.4 percent. Yet forecasts suggest that by 2027, the unemployment rate could fall back below six percent.
With reporting by dpa
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