Economy in crisis: What reforms are urgently needed now!

Economy in crisis: What reforms are urgently needed now!

The current economic situation is increasingly characterized by uncertainty. On May 21, 2025, the “economic wise men” reported that the economic forecast for 2025 had to be lowered to a modest 0.0 percent. In this context, Veronika Grimm, member of the Committee of Experts, discussed the trade conflicts that arose under Donald Trump's presidency. These conflicts have had a negative impact on the global economy and continue to drive uncertainty in the markets.

Expectations for growth next year are also muted. Economic growth is forecast to be slow, with an increase to 1 percent expected in 2026. This increase depends on a decrease in the slack in the economy. Grimm emphasizes that structural reforms are urgently needed to increase the economy's growth potential. A big point remains that the debt-financed investments planned for 2025 have not yet been implemented.

Need for structural reforms

A central concern of Grimm is the need to rethink the reform landscape. It is critically noted that the “economists” were unable to agree on a clear path to reform, although important issues such as reducing bureaucracy and structural change were addressed. It is particularly important to take more ambitious measures to deregulate and reduce non-wage labor costs.

Another aspect that Grimm highlights is demographic development. The baby boomer generation will be retiring in the coming years, which could lead to a dramatic decline in work volumes. That is why it calls for measures that help to increase work incentives, promote migration into the labor market and advance digitalization.

Construction industry as a beacon of hope

In the construction industry, however, there are bright spots. An acceleration is expected in the coming year, particularly in civil engineering, which is crucial for investment projects. However, it is cautioned that without suitable framework conditions, the additional investment funds could only lead to higher prices. This could increase the inflation rate and further limit economic scope.

In summary, it should be noted that the geopolitical challenges and the resulting economic uncertainties underline the need for structural adjustments. Given the reports from [Welt] and [IWH], both of which point to the urgency of limited growth forecasts and necessary reforms, it is clear that political and economic decision-makers are required to take decisive steps.

The comprehensive report by the Community Diagnosis project group, which is prepared twice a year on behalf of the Federal Ministry for Economic Affairs and Climate Protection, will be published on April 10, 2025 and will also be available on the website www.gemeinschaftsdiagnose.de.