Germany needs “reliable economic policy decisions” to achieve sustainable growth, a leading economic institute said on Thursday.
The Munich-based ifo institute said gross domestic product (GDP) could rise by as much as 1.1% next year if policymakers can reduce uncertainty about the direction of the German economy, which ifo said “investors and consumers are already holds back for years. “
Policies to boost growth include “a lower tax burden for businesses, as well as falling bureaucracy and energy costs, expanding digital, energy and transport infrastructure and increasing labor supply,” the institute added.
If the necessary decisions are not taken, German growth could remain at just 0.4% in 2025, the report said.
A deep rift over Germany’s economic malaise has toppled Chancellor Olaf Scholz’s coalition, and new elections are expected in February.
“At the moment it is not yet clear whether the current phase of stagnation is a temporary weakness or a permanent weakness,” said ifo economist Timo Wollmershäuser.
The institute said German companies are struggling due to a lack of demand as consumers continue to suffer losses in purchasing power after a period of high inflation, while wages fail to keep pace.
Meanwhile, orders from abroad have also fallen, despite a general economic recovery around the world.
If German policymakers fail to act, Ifo warned, there is a risk of “creeping deindustrialization,” with German companies moving production and investments abroad.
Structural changes away from industry and towards more services would hamper productivity, with a temporary rise in unemployment expected and growth remaining at a paltry 0.8% in 2026.
