Germany's prosperity on the brink: Ifo President warns of decline!

Germany's prosperity on the brink: Ifo President warns of decline!

The economic situation in Germany is worrying. In a current study by the Ifo Institute, President Clemens Fuest reports that government consumption has increased by over 25 percent since 2015. At the same time, corporate investments have fallen back to 2015 levels. Fuest warns that the situation can be classified as “dramatic” and that Germany's prosperity is in acute danger. This development leads to less growth and therefore also to lower tax revenue. The average standard of living in Germany has been stagnating for a long time, which is contributing to increasing divisions in society.

Germany is also Austria's most important trading partner, where the challenges of a growing state and a stagnating economy are discussed. In Austria, the industrial association is calling for a “disruptive economic policy change” to stop the negative trend.

Urgent need for reform

Fuest makes it unmistakably clear that the German federal government must present a comprehensive overall reform concept by spring 2026 that goes beyond the existing coalition agreement. Social reforms, such as stopping mothers' pensions, are particularly important. A key measure to improve the economic situation could also be to reduce bureaucracy for companies, which could create up to 146 billion euros in additional prosperity annually.

The economic stagnation in Germany has existed for six years and has a variety of negative effects. These include losses of prosperity in terms of per capita income as well as large deficits in households. Rising unemployment means that millions of people are receiving unemployment benefits and citizens' benefits, while at the same time there is an urgent need for skilled workers.

Internal problems and external influences

The causes of these economic difficulties are largely homegrown. Comparable economies have also suffered from global developments such as Covid or the energy price shock of 2022, but Germany's specific problems are clear. High energy costs, wage costs and additional wage costs as well as a high tax burden reduce competitiveness. Despite isolated reform efforts, such as depreciation relief or subsidies for electromobility, there is no significant investment and a sustained increase in employment.

The government does not seem to feel any greater pressure to act; many inconvenient measures are avoided. The impression is growing that there is less of a lack of implementation problems and more of a fundamental problem of knowledge. The need for action is clear, but political actors are hesitant to take necessary steps.

Fuest and other economic experts are calling for a courageous change of course in politics in order to correct the imbalance in the German economy and set the course for positive development. This is the only way to prevent the foreseeable decline in prosperity.