BERLIN — On Wednesday, the German federal government significantly reduced its growth outlook for the nation’s economy for 2025, predicting a meager increase of only 0.3%. This adjustment follows two consecutive years of economic contraction, marking a troubling trend for Europe’s largest economy.
The latest projection is a substantial decrease from the prior forecast of 1.1% growth released in October. Over the past four years, Germany has failed to achieve any substantial growth as it navigates significant changes in the global economic landscape alongside its own structural challenges. Recently published initial figures indicate that the gross domestic product (GDP) fell by 0.2% last year, compounding a decline of 0.3% in 2023.
Economic issues are currently dominating discussions in the lead-up to an early parliamentary election scheduled for February 23. This election, which is taking place seven months ahead of its originally planned date, follows the collapse of Chancellor Olaf Scholz’s three-party coalition last November, triggered by disagreements over strategies to stimulate economic growth.
Candidates vying for leadership in the upcoming government have proposed varying solutions to revive the economy. Vice Chancellor Robert Habeck, who also serves as the economy minister, acknowledged that “the global crises of recent years have profoundly affected our industry-oriented and export-driven economy.” He noted, however, that the immediate energy crisis caused by Russia’s invasion had been alleviated and inflation rates have begun to decrease.
Habeck further emphasized that Germany is currently grappling with crucial structural challenges including a scarcity of skilled labor, cumbersome bureaucracy, and a general lack of investment, both private and public. He pointed out that ongoing uncertainties, particularly concerning U.S. economic policies and Germany’s direction after the elections, are dampening both consumer confidence and investment sentiment.
The Federation of German Industries, the nation’s primary industry lobbying organization, painted an even bleaker picture on Tuesday, forecasting a further contraction in the economy by 0.1% this year. Peter Leibinger, the head of the BDI, criticized past governments for postponing essential reforms and inhibiting investments, stating, “For years, governments have delayed crucial reforms, held back investments, and settled for the status quo.”
