Revised Article:
Ifo Institute Revises Economic Growth Projection
Germany's economy is poised for a significant upgrade, according to the Ifo Institute's latest forecast. The revised outlook predicts a growth of 0.3% in 2025 and 1.5% in 2026, with the initial quarter of 2025 seeing an increase of 0.4% due to a boost in exports to the U.S. and a resurgence in private consumption and investments.
Chief economist Timo Wollmershäuser attributes this turnaround to the announced fiscal measures of the new federal government, stating, "The German economy has bottomed out in the winter half-year." The new coalition's plans to expand infrastructure and defense spending, alongside relief through accelerated depreciation, tax cuts, lower grid fees, and a higher commuter allowance, are estimated to inject an additional 10 billion euros in 2025 and 57 billion euros in 2026, potentially boosting growth by 0.1% in 2025 and 0.7% in 2026.
However, the economic boost isn't without risks. The uncertainty surrounding US trade policy could negatively impact economic growth by 0.1% and 0.3% in 2025 and 2026, respectively. While a resolution in the trade dispute with the U.S. could lead to higher growth, an escalation could potentially trigger a renewed recession.
The labor market is expected to stabilize, with the unemployment rate rising to 6.3% in 2025 before decreasing slightly to 6.1% in 2026. The inflation rate is projected to be 2.1% in 2025 and 2.0% in 2026.
The new German federal government's fiscal measures are aggressive and supportive, encompassing a fiscal stimulus package, increased public spending, tax cuts, subsidies, and the establishment of a €500 billion infrastructure fund [1][5]. These measures are expected to significantly boost GDP growth [2] and temporarily push up inflation rates before they return to more moderate levels [2]. The Maastricht debt ratio is projected to rise to around 66% by 2027, up from 62.5% at the end of 2024.
[1] Prof. Dr. Timo Wollmershäuser, Ifo Institute[2] Bundesregierung (2025)[3] Finance Ministry, Germany[4] Bundesverband der Arbeitsgeber (2025)[5] Infrastructure Fund, Germany
Economic and social policy measures, such as the announced fiscal stimulus and infrastructure fund, are vital in the finance sector as they aim to boost growth and investments in Germany's business environment. The planned expansion in infrastructure and defense spending, combined with tax cuts, subsidies, and lower grid fees, could inject billions of euros into the economy, potentially increasing GDP growth by up to 0.7%.
