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Economic forecasts upward: Hope for growth in 2025!
Ifo Institute and Kiel Institute raise economic growth forecasts for 2025 and 2026, despite risks from trade conflicts.
Economic forecasts upward: Hope for growth in 2025!
The ifo Institute has revised its economic forecast for Germany upwards. Economic growth of 0.3 percent is now expected for 2025, while the forecast for 2026 has been raised to 1.5 percent. These are adjustments of +0.1 percentage points for 2025 and +0.7 percentage points for 2026 compared to the spring forecast, reported Deutschlandfunk.
Timo Wollmershäuser, the head of economic activity at the Ifo Institute, emphasizes that the crisis in the German economy reached its lowest point in the winter half of the year. This positive development is largely supported by the fiscal measures announced by the new federal government. The growth package, which includes tax cuts and extensive investments, is particularly contributing to this.
Causes of growth
In the first quarter of 2025, economic output increased by 0.4 percent, which is primarily due to the increase in early exports to the USA. An increase in private consumption and investment has also been noted. An improvement in corporate sentiment since the beginning of the year plays a crucial role in the optimism of market participants. This optimism could be further boosted by the hope of an end to the economic policy standstill and an agreement in the trade dispute with the USA.
The federal government's planned measures provide for an expansion of infrastructure and defense spending as well as accelerated depreciation. Other points include a reduction in network fees and a higher commuter allowance. These stimuli alone are expected to activate 10 billion euros in 2025 and 57 billion euros in 2026, leading to the forecast growth of +0.1 percentage points in 2025 and +0.7 percentage points in 2026.
Risks to economic development
However, there are risks, particularly in the form of US trade policy and existing import tariffs. The ifo report points to the potential impact on economic growth, which could amount to 0.1 percentage points in 2025 and 0.3 percentage points in 2026. Possible scenarios show that higher growth is in prospect if an agreement on the trade conflict is reached. In contrast, an escalation could pose the risk of another recession.
In addition, a forecast of 2.1 percent for 2025 and 2.0 percent for 2026 is made for inflation. The labor market is also expected to stabilize, with the unemployment rate falling to 6.3 percent in 2025 and 6.1 percent in 2026. The ifo Institute emphasizes that the current forecasts paint a positive picture of the German economy, even if external factors can have a significant influence.