By Maria Martinez
BERLIN (Reuters) -A long-awaited recovery for the German economy has been pushed further back, with three economic institutes revising their forecasts on Thursday.
The German economy is expected to stagnate next year following a 0.3% contraction last year and an expected decline of 0.2% this year, the IfW Kiel Institute for the World Economy said on Thursday.
The institute cut its previous forecast of 0.5% growth for 2025 from September.
“The German economy cannot break free from stagnation,” said the economic institute in its report. “There are hardly any signs of a noticeable economic upturn.”
For 2026, IfW Kiel forecast 0.9% growth, also downwardly revising its previous forecast of 1.1% growth.
“This year, the economy is continuing its zigzag course from quarter to quarter around the zero line and is likely to shrink by 0.2% overall,” the German Institute for Economic Research DIW Berlin said in presenting its new forecasts.
In 2025, growth is likely to be at 0.2%, accelerating to 1.2% in 2026, DIW said, cutting its forecasts again.
“We are seeing a critical mix of a cyclical downturn and structural problems,” said Geraldine Dany-Knedlik, DIW’s head of economic forecasts. “This is particularly affecting the normally export-strong manufacturing industry, which is considered the backbone of the German economy.”
In addition to increased energy and material costs and strong competition from China, tariffs from U.S. President-elect Donald Trump loom, she said.
A TALE OF TWO ECONOMIES
Germany will grow by only 0.4% next year if it fails to overcome structural challenges but can achieve 1.1% growth if the right economic policy course is set, the Ifo Institute said on Thursday.
Because of uncertainty, the Ifo Institute is presenting two scenarios for the current economic forecast. The economic institute had forecast 0.9% growth in its September forecasts.
“At the moment, it is not yet clear whether the current phase of stagnation is a temporary weakness or one that is permanent and hence a painful change in the economy,” said Timo Wollmershaeuser, head of forecasts at Ifo.
According to Wollmershaeuser, tight monetary policy in Europe and in many German export markets has contributed to weak industrial orders that are weighing on the economy.
However, purchasing power has returned, and inflationary pressure, according to the economist, will also continue to ease in Germany.
In both scenarios, the Ifo Institute expects 2.3% inflation for the coming year and 2.0% for 2026.
