Economic researchers lower their growth forecasts further

Munich (dpa) - Following the renewed decline in economic output this year, Germany's leading economic research institutes do not expect an upturn in 2025 either, but do expect unemployment figures to rise. The Kiel Institute for the World Economy (IfW) expects stagnation next year; DIW, IWH, RWI and Ifo Institute expect 0.2 to 0.6 percent growth.

However, if the next German government sets the right economic policy course, growth of 1.1 percent could even be achieved, according to Ifo economic researcher Timo Wollmershäuser. "The recession has now also reached the labor market," said the IfW. The institutes expect the unemployment rate to rise from 6.0 percent in the current year to between 6.1 and 6.3 percent. "At the moment, it is not yet clear whether the current stagnation phase is a temporary weakness or a permanent and therefore painful change in the economy," says Wollmershäuser.

In the optimistic scenario, "a more reliable economic policy" will help industry to invest more again and cut fewer jobs. In addition, incentives to work would have to be strengthened, more people would have to work and more people would have to work full-time. This would then also boost private consumption. Otherwise, the Munich-based economic researchers expect a creeping deindustrialization. The IfW writes that capacity utilization is now 5 percentage points below the low points in normal recession phases. The chemical industry has already shifted production abroad and cut jobs, says Wollmershäuser.

Industry loses competitiveness

The research institutes agree that German exports have become increasingly decoupled from global economic growth. Industry has noticeably lost competitiveness. The mix of an economic downturn and structural problems is causing it problems, says DIW economic analyst Geraldine Dany-Knedlik. Exports are also likely to fall further in 2025. In addition to high energy and material costs and growing competition from China, there is now the threat of even higher US tariffs.

Exports and overall economic production are at the same level as 2019, while investment in equipment is even significantly lower, emphasizes the Leibniz Institute for Economic Research Halle (IWH). The German economy is "struggling with massive location weaknesses that hardly allow for any upward momentum", says Stefan Kooths, Head of Economic Research at the Kiel Institute. Due to the unclear economic policy outlook, companies and consumers are holding back on spending and investments.

Economic and overall political security needed

"If economic confidence is to increase again, a stable government with a recognizable economic policy concept should be formed next spring," says IWH Vice President Oliver Holtemöller. Ifo President Clemens Fuest says: "We need changes in energy policy, we need a reduction in bureaucracy." RWI head of economic research Torsten Schmidt says: "In order for the German economy to grow again next year, it needs above all more economic and overall political security. This would benefit both companies and private consumption."

Inflation between 2.0 and 2.3 percent expected

The institutes expect an inflation rate of between 2.0 and 2.3 percent. However, due to the uncertainty and growing concern about jobs, people are saving more and spending less. Fuest warns against many of the proposals put forward during the election campaign. The VAT cuts would be expensive and not very targeted redistribution, a rent cap would exacerbate the problems on the housing market and a scrappage scheme would be a wealth destruction program.