Economy 2025: German economy remains in crisis, according to Ifo study

Munich. According to the Munich-based Ifo Institute, the German economy is likely to grow less than previously expected next year. The expected recovery for 2026 will be weak, according to the economists' new economic forecast.

This year, the institute expects mini-growth of 0.2 percent, which would be 0.1 percentage points lower than forecast in the summer. According to Ifo calculations, the number of unemployed could rise by 155,000, bringing the unemployment rate to 6.3 percent. The economists lowered their forecast for 2026 by 0.2 percentage points to 1.3 percent.

Whether Germany will find a lasting way out of the economic weakness that has persisted for years depends largely on the coalition government's leadership, according to experts. "The federal government's economic policy measures are likely to take effect, especially starting next year," said Ifo Economic Institute Chief Executive Timo Wollmershäuser.

If implemented consistently and convincingly, fiscal policy could help lift the German economy out of the crisis. "However, if economic policy remains at a standstill, further years of economic paralysis and the erosion of the country's position as a business location are threatened."

According to the Ifo Institute, the EU's tariff agreement with the US has not fundamentally improved the situation, because the tariffs increased by US President Donald Trump remain largely unchanged in effect. "Only the uncertainty associated with the current tariff dispute is likely to gradually subside, which will support the economy," Wollmershäuser said.

According to the researchers, the federal government's economic stimulus package will have a smaller impact on the economy than initially assumed. The Munich-based economists estimate the economic impact of the announced spending increases, tax cuts, and investments at €9 billion this year and €38 billion next year. This would be almost €20 billion less than expected in the summer forecast. Many economists expect the federal government's billions in spending on defense and infrastructure, in particular, to boost the German economy in 2026.

According to the Ifo Institute, unemployment is not expected to fall below six percent again until 2027. In August, the number of unemployed people rose above the three million mark for the first time since 2015.

Economists also expect inflation to rise again to 2.6 percent in the year after next. In 2024, inflation averaged 2.2 percent for the entire year.

RND/dpa