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Germany’s economy has stabilized at a low level. However, 2025 will only show a meager GDP-increase of 0.1, according to the Kiel Institute’s Winter Forecast. Starting next year, fiscal policy will provide stimulus, though weaker than previously expected. The Kiel Institute expects GDP growth of 1.0 percent in 2026 (previously 1.3 percent) and 1.3 percent in 2027. In addition to structural obstacles, weakening exports due to US tariff policy and declining shipments to China continue to weigh on the economy.
“Germany’s economy is treading water because of the many structural problems in the social system, excessive bureaucracy, and the backlog in artificial intelligence and other modern technologies,” says Moritz Schularick, President of the Kiel Institute (https://www.kielinstitut.de/experts/moritz-schularick/). “Overall, it is disappointing that we cannot expect more than one percent growth next year, even though the federal government is taking on substantial debt and intends to raise public investment in infrastructure and defense.”
“Without structural reforms, no self-sustaining upswing can emerge. For firms, too many question marks still hover over key factors to justify a renewed increase in domestic engagement,” says Stefan Kooths, Head of Economic Research at the Kiel Institute(https://www.kielinstitut.de/experts/stefan-kooths/). “To the extent that the recent strong wage increases reflect rising severance payments, this is just another crisis signal from core industrial sectors. Companies that are laying off staff today do not see prospects for improvement in the foreseeable future. That amounts to a vote of no confidence in Germany as a business location.”
Read the full economic forecasts:
German Economy in Winter 2025: Structural Headwinds Meet Fiscal Tailwinds/https://www.kielinstitut.de/publications/german-forecast-in-winter-2025-structur...?
World Economy in Winter 2025: Continued Headwinds Restrain Expansion/https://www.kielinstitut.de/publications/world-economy-winter-2025-continued-hea...?
Unemployment rate declines, public debt rises
The labor market is expected to regain footing as economic momentum gradually picks up, with the unemployment rate falling from 6.3 percent this year to 5.9 percent in 2027. The government budget deficit is projected to rise from 2.4 percent of GDP in 2025 to 4.0 percent in 2027. Public debt will increase to 65.4 percent of GDP by 2027.
The inflation rate will hover around the European Central Bank’s target range, at 2.2 percent (2025), 1.8 percent (2026), and 2.1 percent (2027).
Private investment remains subdued
Corporate investment will decline for the second consecutive year in 2025. Starting next year, it is expected to increase moderately by 2.9 percent (2026) and 3.5 percent (2027). However, investment activity remains too weak for a broad-based recovery.
Construction investment is also moving through a very deep trough. Despite gradually increasing activity, levels in 2027 will still be 13 percent below those of 2020.
Exports and Private Consumption Moving Upward
Private consumption is expected to rise by 0.8 percent this year and at similar rates in the following two years. Exports are projected to decline slightly in 2025 (-0.2 percent). For the subsequent years, the Kiel Institute expects moderate increases of 0.9 percent (2026) and 1.6 percent (2027). As tariff hikes weigh on trade dynamics and reduced competitiveness, particularly relative to China, continues, Germany is still losing global market share.
Global Economy: Moderate growth
According to the Kiel Institute’s forecast, the global economy will expand by a good 3 percent this year and next. While momentum in the United States and the EU is temporarily slowing down, China’s economy is failing to gain traction.
Read the full economic forecasts:
German Economy in Winter 2025: Structural Headwinds Meet Fiscal Tailwinds/https://www.kielinstitut.de/publications/german-forecast-in-winter-2025-structur...?
World Economy in Winter 2025: Continued Headwinds Restrain Expansion/https://www.kielinstitut.de/publications/world-economy-winter-2025-continued-hea...?
Our subject dossier Economic Outlook (https://www.kielinstitut.de/topics/economic-outlook/) provides an overview of all our forecasts.
Click here for more information on the Kiel Institute's Forecasting Group: https://www.kielinstitut.de/institute/research-centers/macroeconomics/business-c...
Media Contact:
Mathias Rauck
Chief Communications Officer
T +49 431 8814-411
mathias.rauck@kielinstitut.de
Kiel Institute for the World Economy
Kiel Office
Kiellinie 66
24105 Kiel
Germany
Berlin Office
Chausseestraße 111
10115 Berlin
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Contact
+49 431 8814-1
www.kielinstitut.de
Prof. Dr. Stefan Kooths
Director Business Cycles and Growth
T +49 431 8814-579
stefan.kooths@kielinstitut.de
Gross Domestic Product (GDP) Germany
Copyright: Kiel Institute for the World Economy
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Copyright: Kiel Institute for the World Economy
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