AI OVERVIEW
Germany's economy is
expected to grow very modestly in 2025, with forecasts predicting a 0.2% GDP increase after two years of contraction.
While some signs of recovery exist, including slightly improved exports
in September 2025, challenges remain, such as high energy costs and
weak industrial output, particularly in the manufacturing sector.
Looking ahead, growth is projected to accelerate to around 1.3% in 2026. Key aspects of the 2025 outlook
- GDP growth: Expected to be a modest 0.2%, a slight upward revision from previous zero-growth forecasts.
- Inflation: Projected to be around 2.1% to 2.2% for the year, slightly above the European Central Bank's target.
- Unemployment: The rate is forecast to be around 3.6% by the end of 2025.
- Exports: Saw a rebound in September 2025, but overall exports are still below their March 2025 levels.
Factors influencing the economy
- Weak industrial output: The manufacturing sector, especially energy-intensive industries, has seen significant declines.
- High energy costs: Despite improved access to LNG, high electricity prices continue to pressure industrial competitiveness.
- Increased competition: Germany faces growing competition from China.
- Weak domestic demand: Consumer sentiment is weak, and investment activity remains subdued, partly due to political uncertainty.
- Government stimulus: A new government has pledged to boost spending on infrastructure and defense, with the hope that this will accelerate growth in 2026.
Looking ahead to 2026
- Stronger growth: The economy is expected to grow more significantly, with forecasts for 2026 around 1.3% to 1.4%.
- Government spending: Increased infrastructure and defense spending is a key driver for the improved outlook.
- Potential for faster growth: Goldman Sachs believes policy reforms could further boost GDP growth.
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