Economic forecast downgrades GDP predictions for 2025 and 2026 by the International Monetary Fund (IMF)

The ifo Institute, a renowned economic research organization, has recently released its revised forecast for the German economy. The institute warns of potential economic stagnation and business location erosion if there is a standstill in economic policy.

According to the forecast, Germany's economic output (GDP) is expected to grow by 0.2 percent in 2025, following a 0.3 percent decline in the second quarter. The institute predicts a slight GDP growth of about 0.2 percent compared to the previous quarter by the end of the year, signifying a slow but noticeable recovery in the second half of 2025. However, overall economic output in 2025 is expected to remain around 0.1 percent below the previous year.

Looking ahead to 2026, the ifo Institute forecasts a more optimistic outlook, with GDP growth expected to increase to 1.3 percent. The economic policy measures of the federal government are expected to increase to 38 and 19 billion euros in 2026 and 2027, respectively. If these measures are consistently and convincingly implemented, they can help reduce current uncertainty and pull the German economy out of the crisis.

However, the institute's revised forecast suggests less impetus from the planned economic policy measures of the federal government. The wave of state orders from the special fund for infrastructure is not expected to take effect until 2026. The effective tariff rates remain largely the same as in the summer, with the US tariffs continuing to burden the German economy.

The ifo Institute also notes that fiscal policy can help the German economy if economic policy measures are effectively implemented. The institute states that a standstill in economic policy could lead to further years of economic stagnation and erosion of the business location.

The agreement in the trade dispute between the USA and the EU has no immediate effects on the forecast. The uncertainty associated with the previous trade dispute is likely to gradually decrease. The ifo Institute's revised forecast does not indicate a significant momentum gain for the German economy in the second half of 2025.

In summary, while the ifo Institute forecasts a modest recovery for the German economy in 2026, there are concerns about potential economic stagnation and business location erosion if there is a standstill in economic policy. The planned economic policy measures of the federal government are expected to take effect mainly from next year, offering hope for a stronger economic growth in the future.

Economic forecast downgrades GDP predictions for 2025 and 2026 by the International Monetary Fund (IMF)