KfW Research has revised its economic growth forecasts for Germany, adjusting the expected gross domestic product (GDP) growth rate for 2025 to 0.5%, down from the previously anticipated 1.0%. The forecast for 2024 has also been slightly modified, now standing at -0.1% in real terms, compared to an earlier prediction of +0.1%.
The adjustments come as Germany's economy faces ongoing challenges. According to Dr Philipp Scheuermeyer, an economic expert at KfW Research, "After the expected moderate recovery in the winter of 2024/2025, there is still the threat of a situation in which positive and negative quarterly growth rates alternate. As a result, macroeconomic production capacities are likely to remain underutilised in the coming year."
Several factors contribute to this revised GDP forecast for 2025:
Private consumption remains a crucial economic driver but is expected to grow at a slower pace due to stagnating wage growth and reduced job growth. Low capacity utilization in industry and pessimistic business expectations are affecting business investment activities negatively.
Despite these challenges, some positive factors exist, such as monetary easing by the European Central Bank that may provide some support for corporate and housing investments.
Political and economic uncertainties have increased following Donald Trump's election as US president. His administration's potential introduction of new tariffs on US imports could harm the German economy. KfW Research assumes that while protectionist measures will be initiated early in his term, not all planned tariff increases will be immediately enforced.
Dr Scheuermeyer noted that political uncertainty within Germany due to snap elections might impact economic predictions: "With the snap election, uncertainty about politics in Germany will also remain high until the conclusion of coalition negotiations."
In light of these developments, KfW Research has also lowered its GDP growth forecast for the euro area next year from 1.3% to 1.0%.