Economic institutes have lowered their GDP growth forecasts for Germany for 2025-2026

Analysts point to US tariffs and delays in government stimulus

Leading German economic institutes have lowered their forecasts for Germany’s economic growth in 2025 and 2026, citing the negative impact of US tariffs and delays in government stimulus, Reuters reports.

The Ifo Institute now expects the country’s GDP to grow by 0.2% in 2025 and 1.3% in 2026. This is 0.1 and 0.2 percentage points less than in the summer forecasts. In 2027, the institution forecasts growth of 1.6%.

Germany is trying to regain momentum after two years of decline. Timo Wollmershäuser, head of the Ifo forecasting department, noted that if economic policy remains stagnant, the country faces further years of paralysis and erosion as a place to do business.

The Kiel Institute for the World Economy said that business expectations have improved thanks to the prospect of increased government spending, but US tariff policy remains a problem.

The IfW lowered its growth forecast for 2025 to 0.1% from 0.3% in its June review. The institute expects Germany’s GDP to grow by 1.3% in 2026 (previously 1.6%) and by 1.2% in 2027.

The Leibniz Institute for Economic Research (RWI) expects the German economy to grow by 0.2% this year, 1.1% in 2026, and 1.4% in 2027. These forecasts have also been lowered compared to the summer ones. It was noted here that from next year, most of the growth will be provided by a fiscal stimulus of around 0.9% of GDP annually. However, analysts warn that government spending cannot be a permanent substitute for private investment.

At the same time, Germany’s budget committee has finalized the 2025 budget with record investments to revive the economy and a firm commitment to defense spending, Reuters reports, citing sources.

The budget, with total spending of €502.5 billion, includes €62.7 billion in investments, according to a document seen by the agency. The draft contains only minor changes compared to the one adopted by the government before the summer recess. The budget will be put to a vote in parliament in the second half of September.

After several months of growth, the economic sentiment indicator in Germany, calculated by the ZEW research institute, fell to 34.7 points in August from 52.7 points in July. Financial market experts were disappointed with the announced trade agreement between the EU and the US. The indicator also fell significantly due to poor performance of the German economy in the second quarter of 2025.