Economic turnaround or standstill? Rich fights against OECD forecast!

Economic turnaround or standstill? Rich fights against OECD forecast!

The German economy faces serious challenges. Katherina Reiche, who was sworn in as the new economics minister five weeks ago, has set herself the goal of revitalizing the country's economy and implementing a comprehensive “economic turnaround”. A current OECD report has now published a gloomy forecast for Germany's economic development.

For 2025, the OECD expects mini-growth of just 0.4 percent, which would put Germany at the bottom of the list among industrialized countries. In comparison, growth of 1.3 percent is forecast for the euro area in 2025, and economic growth of 3.3 percent is expected worldwide. This correction in the forecast is alarming, as a forecast of 1.0 percent for the coming year was made in September before it was revised downwards to 0.4 percent. The situation for 2026 is also slowly showing improvement with expected growth of 1.2 percent.

Background and challenges

In its almost 200-page report, the OECD not only analyzed the current growth forecasts, but also the external and internal factors that are weighing on Germany's economic situation. The effects of the corona pandemic, the Ukraine conflict, supply chain problems and various trade conflicts are causing problems for German industry. In addition, home-grown problems such as weak external demand are seen as a hindrance to flourishing economic growth.

OECD boss Mathias Cormann has made it clear that Germany needs structural reforms to stimulate economic growth. The OECD's proposals include cutting bureaucracy, which could bring additional growth of 0.2 percent, and improving childcare options, which heralds further growth of 0.1 percent. Linking pensions to life expectancy could also have future-oriented effects.

Strategies of the new economics minister

To meet the challenges, Katherina Reiche has announced various measures. These include a reduction in energy prices for industry, an investment booster to improve depreciation and easier start-ups. Reiche emphasizes that less bureaucracy should play an important role in promoting economic growth. However, some of the proposals, such as the abolition of spouse splitting, must be excluded in the current coalition agreement between the Union and the SPD.

Reiche admits that not all of the OECD's proposals can be implemented in the short term and that the government needs time to carefully examine these recommendations. A final judgment on the new federal government's progress will only be possible in the next OECD report.

Given the high level of uncertainty surrounding the financing and implementation of climate-friendly production, which is affecting investor and consumer confidence, the next few years will be dominated by reforms and strategic adjustments. The development of the German economy will therefore continue to be closely monitored.

For more detailed information and further developments on the economic forecast, the reports from daily news as well as RND be consulted.