The DIW economic institute significantly reduced its growth forecast for Germany, anticipating zero growth in 2025, primarily due to instability in US trade policies. The forecast for 2026 was also downgraded slightly to 1.1 percent. German exports are heavily influenced by US relations, and ongoing trade tensions have exacerbated Germany's existing recession. A potential government formation and new spending proposals by Friedrich Merz, aimed at boosting infrastructure, may offer some economic hope, possibly lifting GDP substantially in the coming years, according to DIW.
An economic think-tank slashed its 2025 growth forecast for Germany to zero, warning of 'erratic' US trade policy. However, increased public spending might provide a boost.
Germany is heavily dependent on exports, and the uncertainty surrounding US trade policies poses significant challenges for its economic stability.
We might soon expect a government that is capable of action, and that should quickly make economic conditions clearer, said Geraldine Dany-Knedlik.
A proposal by likely next chancellor Friedrich Merz to spend €500 billion over 10 years on infrastructure could provide a major boost, potentially lifting GDP by two percent a year.
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