#german-economy

#german-economy

Germany's economic losses from years of overlapping crises have been mounting to nearly 1 trillion, according to estimates by the German Economic Institute (IW). The employer-aligned research institute said the inflation-adjusted shortfall in gross domestic product since 2020 has totaled about 940 billion (about $1.1 trillion) over six years, reflecting the impact of the coronavirus pandemic, the effects of Russia's war against Ukraine, and confrontational US policy.

"The German economy is starting the new year with little momentum," said Ifo president Clemens Fuest. Hammered by a manufacturing slump, fierce competition in key export markets and US tariffs, the German economy has been mired in a long decline. After meagre growth in 2025 following two years of recession, some have been banking on the turnaround picking up speed sharply this year driven by a public spending blitz.

While many economists believe it will return to stronger growth in 2026, hopes of a quick recovery are fading amid doubts over Berlin's planned investment spree under Chancellor Friedrich Merz. Before Christmas, Germany's Bundesbank lowered its growth forecast for 2026 to 0.6%, down from its previous June forecast of 0.7%. However, the central bank raised the forecast for 2027 to 1.3%, predicting that the pace of economic activity would pick up from the second quarter of 2026.

Data for the first three quarters of 2025 have shown that smaller German firms have borne the brunt of almost three years of economic downturn in Europe's biggest economy over the past three years. On December 12, the chief analyst at the Association of German Chambers of Industry and Commerce (DIHK), Volker Treier, told news agency Reuters that the "wave of insolvencies continues." He added that small and medium-sized enterprises in particular were "running into difficulties."

The German Council of Economic Experts warned the Merz government on Wednesday that there is no economic upturn in sight for 2026 forecasting GDP growth of just 0.9%. The council urged a change of course, calling for, among otherthings, reforms to inheritance tax law. The Council of Economic Experts also warned the government not to squander the opportunity to invest the country's Special Fund for Infrastructure and Climate Neutrality (SVIK), saying not to do so would be to risk further economic stagnation.

German Chancellor Friedrich Merz is set to meet top executives from major German firms on Monday in a bid to restore investor confidence and revive the struggling economy.

"We should not be talking about more, but about fewer barriers to trade," she told Redaktionsnetzwerk Deutschland.

Industrial production rose by 1.2 percent month-on-month, driven by a surge in energy output and a strong performance from the automotive sector, where production increased by 4.9 percent.