Germany’s economy is expected to expand only modestly over the next three years, as structural obstacles, global trade pressures, and cautious private investment continue to weigh on growth.
That is according to forecasts from German economic specialists the ifo Institute, the Kiel Institute and RWI today.
They said country is navigating a period of profound transformation, marked by digitalisation, decarbonisation, demographic shifts, and geopolitical uncertainty.
Slow adaptation to these changes, bureaucratic hurdles and lagging technological adoption, particularly in artificial intelligence, are constraining the economy’s potential.
The Ifo Institute projects growth of 0.1 per cent in 2025, rising to 0.8 per cent in 2026 and 1.1 per cent in 2027.
According to Timo Wollmershäuser, deputy director of Ifo’s Centre for Macroeconomics: “The German economy is adapting to structural change through innovations and new business models only slowly and at considerable cost.”
Similarly, the Kiel Institute forecasts 0.1 per cent growth in 2025, followed by 1.0 per cent in 2026 and 1.3 per cent in 2027.
Moritz Schularick, its president, said: “Overall, it is disappointing that we cannot expect more than one per cent growth next year, even though the federal government is taking on substantial debt and intends to raise public investment in infrastructure and defence.”
Stefan Kooths, the Institute’s head of economic research, added: “Without structural reforms, no self‑sustaining upswing can emerge. Companies facing persistent uncertainty are reluctant to increase domestic engagement.”
Investment remains subdued, particularly in the industrial sector, the ifo noted.
The ifo survey highlights sharp cuts in corporate investment plans, especially in automotive and chemical manufacturing, while RWI notes that private sector activity is unlikely to drive a broad recovery in the near term.
Some technology sectors, including data processing and electronics, plan increased spending on research and development but these remain exceptions.
Exports are also under pressure. US tariffs and reduced competitiveness relative to China are expected to limit trade growth, while domestic demand remains cautious.
The Kiel Institute forecasts a slight contraction in exports for 2025, with moderate increases in the following two years.
On the fiscal side, public deficits are expected to widen as government spending offsets weak private investment.
Both Kiel and RWI stress that while fiscal stimulus provides short‑term support, long‑term growth depends on structural reforms — including simplification of bureaucracy, labour market incentives, and acceleration of digitalisation.
The Kiel Institute projects that as public spending increases, Germany’s general government budget deficit will grow from 2.4 per cent of GDP in 2025 to 4 per cent in 2027.
Unemployment is expected to fall gradually, from around 6.3 per cent in 2025 to just under 6 per cent by 2027, while inflation should remain near the European Central Bank’s target range, it said.
Analysts warn that without decisive reforms, Germany may struggle to maintain its traditional role as Europe’s industrial engine, with moderate GDP gains likely to continue amid lingering global trade and geopolitical uncertainties.
Highlighting the human and industrial impact of these structural challenges, the Porsche works council warned today that up to one in four jobs at the company could be at risk. The sports car manufacturer is exploring relocation and cost-cutting measures amid weak global demand and rising production costs, it said.
“The Executive Board has not yet presented a vision for the future of our German Porsche locations, but is threatening to relocate development and production to countries with significantly lower wage levels,” said Ibrahim Aslan, head of Porsche’s general works council.
