Germany’s leading economic research institutions have lowered their GDP growth forecasts for 2025 and 2026, citing persistent challenges from U.S. trade tariffs and slower-than-expected fiscal stimulus in an economy still recovering from two years of contraction. The Ifo Institute now projects a 0.2% expansion in 2025 and 1.3% in 2026, down from earlier estimates of 0.3% and 1.5% respectively. It anticipates growth will reach 1.6% by 2027. n nThe economy continues to face headwinds due to subdued global demand, elevated energy prices, and declining industrial production. Timo Wollmershaeuser, Ifo’s chief forecaster, warned that without decisive policy action, Germany risks prolonged stagnation and a weakening of its attractiveness as a business hub. n nFiscal measures are expected to contribute 9 billion euros ($10.54 billion) to economic activity in 2024, increasing to 38 billion euros in 2026 before moderating to 19 billion euros in 2027. However, the impact of these outlays may be delayed, limiting near-term momentum. n nThe Kiel Institute for the World Economy noted a modest improvement in business sentiment due to anticipated public spending, but emphasized that American tariff policies continue to hinder export growth. It revised its 2025 forecast down to 0.1% from 0.3%, with 2026 growth now projected at 1.3% instead of 1.6%, and 1.2% in 2027. n nAdditional public funding set to be released from 2025 could add 0.6 percentage points to next year’s growth and 0.3 points in 2027. Meanwhile, the Leibniz Institute for Economic Research (RWI) forecasts GDP increases of 0.2% in 2025, 1.1% in 2026, and 1.4% in 2027—revisions downward by 0.1 and 0.4 percentage points from prior assessments. n nRWI highlighted that from 2026 onward, fiscal expansion equivalent to 0.9% of GDP annually will be the main driver of growth, though it cautioned that public expenditure cannot indefinitely compensate for weak private-sector investment. Torsten Schmidt, the institute’s chief economist, stressed that current spending initiatives fail to address structural issues affecting Germany’s long-term competitiveness. n nThe general government deficit is projected to climb from approximately 116 billion euros in the current year to nearly 158 billion euros in 2026 and 170 billion euros in 2027. Despite these fiscal pressures, unemployment is expected to decline to around 6.0% by 2027, down from a projected 6.3% in 2024. Inflation is anticipated to remain close to the European Central Bank’s 2% target throughout the forecast period. n n($1 = 0.8542 euros) n
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German institutes cut growth forecasts as tariffs bite, fiscal boost lags
BERLIN, Sept 4 (Reuters) – Leading German economic institutes on Thursday trimmed growth forecasts for 2025 and 2026, citing headwinds from U.S. tariffs and delays to the boost from higher public spending in an export-reliant economy struggling to regain momentum. n nThe Ifo institute now expects gross domestic product to expand by 0.2% in 2025 and 1.3% in 2026, shaving 0.1 and 0.2 percentage points from its summer projections. It forecasts growth of 1.6% in 2027. n nSign up here. n nGermany has struggled to regain momentum after two years of contraction, hit by weak global demand, high energy costs and a slide in industrial output. n n”If economic policy remains at a standstill, further years of economic paralysis and erosion of Germany as a business location threaten,” said Timo Wollmershaeuser, Ifo ‘s head of forecasts. n nIfo estimated Berlin ‘s planned economic policy would deliver a fiscal boost of 9 billion euros ($10.54 billion) this year, rising to 38 billion euros in 2026 and 19 billion euros in 2027. n nThe Kiel Institute for the World Economy said business expectations have improved on prospects of higher government spending, but U.S. tariff policy remains a drag. n nIfW cut its 2025 growth forecast to 0.1% from 0.3% in June and now sees GDP rising 1.3% in 2026, down from 1.6% previously, and 1.2% in 2027. n nBerlin is poised to deploy newly available public funds from 2025, which could lift next year ‘s growth by about 0.6 percentage points and by 0.3 percentage points in 2027. n nThe Leibniz Institute for Economic Research RWI expects GDP to expand by 0.2% in 2025, 1.1% in 2026 and 1.4% in 2027, marking downward revisions of 0.1 and 0.4 percentage points versus its summer projections. n nFrom 2026, a fiscal push worth about 0.9% of GDP annually is set to do most of the lifting, the institute said, but warned government spending could not be a permanent substitute for private investment. n n”The government spending programmes… do not solve the fundamental competitiveness problems of the German economy,” said RWI chief economist Torsten Schmidt. n nThe general government deficit is expected to rise from roughly 116 billion euros to just under 158 billion euros in 2026 and to 170 billion euros in 2027. n nThe three institutes expect the unemployment rate to ease to around 6.0% by 2027 as activity improves, after rising to 6.3% this year. Inflation is expected to oscillate around the European Central Bank’s 2% target over the forecast horizon. n n($1 = 0.8542 euros) n nReporting by Maria Martinez, Editing by Rachel More and Ros Russell