Mini-growth and rising unemployment: Germany's gloomy forecast for 2025

The German economy will also have a difficult time in 2025: As the spring report from the economic research institutes shows, the gross domestic product (GDP) will only grow by 0.1 percent. This is a sharp reduction from the previously expected 0.8 percent. An increase of 1.3 percent is forecast for 2026, but the short-term outlook is characterized by uncertainty.

A central factor for the stagnating economic situation are the new trade tariffs in the USA, which reduce GDP growth by 0.1 percentage points each. The tariffs on aluminum, steel and vehicle imports in particular are putting a significant strain on economic development. The planned additional tariffs could even double the negative effects. In addition, geopolitical tensions and protectionist trade policies are increasing the challenges for the German economy.

Growing challenges in the labor market

The labor market figures are alarming: since mid-2022, unemployment in Germany has increased by 20 percent, affecting over 400,000 people. The unemployment rate increased from 5.0 percent to 6.3 percent. Job losses are primarily seen in manufacturing, construction and business services, while employment is increasing in public services, education and health care. Forecasts show that unemployment will continue to rise in the coming months.

Although the federal government is trying to create additional debt leeway through changes to the financial constitution - especially for defense, climate protection and infrastructure - hardly any additional funds are expected for investments. Additional spending of around 24 billion euros could still have a positive effect of around 0.5 percentage points on GDP.

Another report states that Germany may have contracted by 0.3 percent and 0.2 percent in 2023 and 2024, further exacerbating an already difficult situation. The institutes expect continued mini-growth as well as a decline in the number of employees, which, although expected to remain above 46 million, will not be without challenges. In the long term, companies complain about structural problems such as a shortage of skilled workers and high bureaucratic hurdles, which further limit competitiveness.

In view of these developments, the Association of German Chambers of Industry and Commerce (DIHK) is calling for a turnaround from the future federal government in order to prevent another recession. The planned relief in the coalition agreement between the Union and the SPD could be important in order to stabilize the economy.

The spring forecast will serve as the basis for new government projections and future tax estimates and will therefore be closely monitored in the coming months.