Economic Outlook

The German economy is beginning to show signs of recovery. According to the Kiel Institute’s summer forecast, growth this year is expected to be slightly stronger than previously anticipated. The Institute now projects a modest increase in GDP of 0.3 percent for 2025 (up from 0.0 percent in the spring forecast), and 1.6 percent in 2026 (previously 1.5 percent). Nonetheless, economic momentum remains subdued for now—partly due to negative effects from U.S. trade policy.

The German economy will continue to tread water in 2025. In their spring report, the leading economic research institutes forecast an increase in gross domestic product of just 0.1 per cent for the current year. For 2026, the institutes expect gross domestic product to increase by 1.3 per cent. In the short term, the new US trade policy and economic policy uncertainty are weighing on the German economy. The additional scope for public debt should gradually have an expansionary effect, but threatens to crowd out private consumption and private investment.

US tariff and trade policies are dampening the German economy, but the planned substantial deficit leeway through a special fund and credit-financed defense spending would give it a significant boost next year. This is according to the current spring forecast from the Kiel Institute for the World Economy. According to the forecast, the outlook for 2025 remains unchanged at stagnation (0.0 percent). For the coming year, the Kiel Institute is significantly revising its expectations upwards by 0.6 percentage points compared to the winter forecast and now expects an increase of 1.5 percent. The downside is a rising public debt level to over 65 percent of GDP, and there is still no all-clear for inflation.