09/25/2025September 25, 2025
Economists warn German growth plan needs structural reforms
Germany’s leading economic institutes have said the government’s investment package will deliver only short-term gains unless paired with structural reforms.
In their autumn report, the five institutes forecast of 1.3% in 2026 and 1.4% in 2027. But they cautioned that “persistent structural weaknesses” mean the momentum will not last, according to Geraldine Dany-Knedlik of the German Institute for Economic Research (DIW Berlin).
For 2025, the economists expect GDP to rise just 0.2%, “barely more than stagnating,” Dany-Knedlik said, noting the slight upgrade from a 0.1% spring forecast reflecting revised data from previous years.
“A renewal of the German economy remains elusive and prospects for growth are continuing to deteriorate,” said Dany-Knedlik, as she presented updated growth projections conducted jointly by several institutes.
“Structural problems are merely being masked,” she said, warning that high costs, a gap in skills and diminishing competitiveness all threatened growth.
The report flagged “considerable risks” for the economy, citing the potential for a US trade dispute to escalate and uncertainty over the overall impact of expansive fiscal policy.
The institutes warned that aggressive US trade policy threatened to drag down global growth.
“The casts long shadows over the world economy in autumn 2025,” said economist Hannah Seidl of DIW Berlin, noting that while many countries and the EU have reached trade agreements with Washington, those deals “entrench a high tariff level.”
Speaking alongside Dany-Knedlik, Stefan Kooths of the Kiel Institute for the World Economy compared the German economy to a drug addict who had just received a fix in the form of Merz’s promised billions.
The effective on US imports is now more than 10 percentage points above its 2024 level, she said.
This year’s joint diagnosis involved DIW Berlin, the Leibniz institutes in Essen and Halle, the Munich-based Ifo Institute and the Kiel Institute for the World Economy.
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