Germany’s top five economic institutes predict a negative growth rate – even marginally – in their new six-monthly forecasts released on Thursday. Specifically, the Gross National Product (GDP) expected to contract by 0.1% this year. If this actually happens, it will be the second year in a row with a negative sign. The German economy has not shown a similar image for 20 years.

The forecast is co-signed by the Institute of German Economics (DIW) at Berlinthe Munich-based IfO, the Institute for World Economics (IfW) Kiel, as well as the Leibniz Institutes in Essen and Halle (RWI, IWH). These forecasts form the basis for the German government’s own updated forecast, which is expected soon.

Weak recovery in the coming years

A positive sign is expected for 2025 and 2026, with the growth index reaching 0.8% and 1.3% respectively. With their autumn forecasts, experts confirm the estimates of the Organization for Economic Co-operation and Development (OECD), according to which Germany currently shows the lowest growth rates of any other major industrialized country.

In their spring forecasts, the leading economic institutes had left some room for optimism to avoid the recession and spoke of a growth index of +0.1%. Now they are forced to revise their estimates on the fly. Geraldine Dany-Knedlik, DIW’s Berlin executive, points out that “in addition to the recession, the economy is also burdened by structural changes such as decarbonisation, digitalisation, demographic changes and intensifying competition with firms from China ».

The conclusion of the experts coincides with what is heard in the business world. “More and more companies are asking me for a helping hand, as they are on the verge of bankruptcy,” says the president of the German Chamber of Commerce and Industry, Peter Adrian. “They are particularly burdened by high energy, labor and tax costs, endless red tape, time-consuming approval procedures for new investments and labor market shortages.”

Decline in consumer spending

High interest rates and geopolitical uncertainties complete the pessimistic picture. All this affects private consumption as well. Because the worse the consumer’s psychology, the less his spending. “People prefer to save money for a difficult time, rather than invest it in real estate or dispose of it in consumer goods” point out the leading financial institutes.

For Peter Adrian it is clear that “Germany is losing touch with the top, this cannot continue. Politicians must take action. The business world needs a new start with competitive energy prices and lower taxes, with faster procedures and an effective fight against bureaucracy.”

In an attempt to respond to these perennial demands, the German government had presented in the summer the “Initiative for Growth”, a package of 49 measures to stimulate economic activity, with a target growth rate of 0.5% by 2025. For the Stefan Koths, director of research at the IfW Institute in Kiel, says this is “a step in the right direction”, but it does not guarantee that the goal will be achieved. Many of these measures are either “too vague” or “require time to be implemented and lead to concrete results,” the report by leading economic institutes said.

Different perceptions of “co-governance”

The business world views the “law to fight red tape” recently approved by the Federal Parliament with a critical attitude. The final result “falls far short of expectations,” notes the Association of German Industries (BDI).

It is now evident that the three parties of the “co-government”, i.e. the Social Democrats (SPD), the Greens and the Liberals (FDP) have completely different conceptions of the economy. For example, while the SPD supports the demand for “special prices” for energy in industry and state subsidies for the expansion of energy networks, the Liberals reject it – so far at least. For many of the 49 measures of the “Initiative for Growth” no draft law has appeared, which, from the FDP’s point of view, is a clear indication that the SPD and Greens are trying to delay the implementation of the measures. Still other measures require bold financing, although the FDP insists on the constitutionally enshrined “debt brake”, which de facto limits the possibilities of new borrowing.

The leading economic institutes criticize the ongoing intra-governmental conflicts and note that “political instability is an additional risk factor for the economy”. They even warn that “although the federal government recently approved the draft budget for 2025, concerns about the ability of the governing coalition to act have not disappeared, as the political parties participating in it have set different goals.”

Edited by: Yiannis Papadimitriou