Stagnation and pressure for reform: Germany's economy will face major challenges in 2025!

Stagnation and pressure for reform: Germany's economy will face major challenges in 2025!

The German economy will be confronted with stagnating development in 2025. As ZDF reports, the experts from the Advisory Council for the Assessment of Overall Economic Development, also known as the “five modes of economics”, have lowered the forecast for economic growth from the previous 0.4 percent to zero growth. This is happening in a context in which the federal government is also adjusting the economic forecast for the coming year and is assuming no growth.

In a slightly more optimistic scenario, marginal growth of up to 1.0 percent is predicted for 2026, but this is highly dependent on the implementation of a new financial package by the federal government. Reducing unnecessary bureaucracy is seen as one of the central aspects of reviving the stagnating economy.

Structural crisis as a challenge

Germany has been in a serious structural crisis since the founding of the Federal Republic. Ulrike Malmendier, member of the Advisory Council, is critical of the many short-term forecasts and calls for long-term solutions. Lars Klingbeil (SPD), the new finance minister, is faced with the task of adopting the budget plans for 2025 and 2026, while the government plans to promote investment, reduce energy prices and reduce bureaucratic hurdles.

However, the challenges facing the German economy could not be more different. Forecasts from the ifo Institute indicate growth of between 0.4% and 1.1%. In the pessimistic scenario, a stagnating economy could trigger deindustrialization, which is accompanied by high costs and declining competitiveness, especially in exports outside Europe. This could lead to production relocations, weak productivity growth and rising unemployment.

Economic risks and opportunities

In its perspective, the IW Cologne paints a bleak picture with only 0.1% growth. The economy appears to be in crisis mode after two years of recession, while private consumer spending is stagnating despite rising wages and falling inflation. Forecasts indicate an unemployment rate of 6.2%, meaning nearly three million unemployed by 2025.

High energy costs and bureaucracy, as well as difficult access to international markets, significantly affect the competitiveness of the industry. Producer prices for commercial products have risen by 40% since 2020 and investments have collapsed by 210 billion euros. What is particularly alarming is that four out of ten companies are planning lower investments for 2025.

Need for common reforms

In order to meet the challenges, the institutes emphasize the need for structural reforms. This includes tax and bureaucratic reforms to reduce the tax burden and reduce bureaucracy. It also calls for the promotion of investments in infrastructure projects and an active industrial policy. Labor market reforms should also create incentives and improve working conditions.

The conclusion is clear: The forecasts paint a mixed picture for the German economy in 2025. In order to secure its status as an industrial location, well-founded reforms are essential. It remains to be seen whether the new federal government can and will take on these challenges.

For more information you can visit the reports ZDF and CF specialist portal see.