Shock for German economy: Experts expect shrinkage

The Kiel Institute for the World Economy (IfW) is expecting the economy to shrink again this year. The researchers have revised their economic forecast downwards significantly and are now expecting a decline in gross domestic product (GDP) of 0.1 percent, as they announced on Wednesday. In the summer, the institute had still expected a small growth of 0.2 percent. The outlook for 2025 has also worsened.

“The upward signals that the leading indicators were still sending in the summer have not been consolidated,” explained Stefan Kooths, head of economic affairs at the IfW. In 2017, weak private consumption in particular weighed on the economy, with households holding back despite the continued rise in real incomes. Industry and the construction sector slipped “deeper into recession.”

Forecast shows: Falling inflation, increasing unemployment

The institute also revised its forecast downwards significantly for the coming year: from growth of 1.1 percent to an increase of just 0.5 percent. The German economy will then pick up “some speed” due to rising income, higher demand from abroad and falling interest rates. According to the forecast, the unemployment rate could rise to 6.1 percent in the meantime, and inflation could “gradually fall to two percent.”

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In an initial estimate, the IfW expects economic growth of 1.1 percent for 2026. However, 0.3 percentage points of this was attributed to the above-average number of working days. (dpa/mp)