Economy and Climate Action Minister and Greens Party chancellor candidate Robert Habeck arrives for the weekly federal government cabinet meeting on January 29, 2025 in Berlin, Germany.
Sean Gallup | Getty Images News | Getty Images
The German government on Wednesday slashed its gross domestic product forecast to just 0.3% growth in 2025.
“The diagnosis is serious,” Robert Habeck, economy and climate minister, said during a press conference, according to a CNBC translation. He noted that, while there are some positive developments such as rising demand for credit, “Germany is stuck in stagnation.”
The latest GDP estimate is sharply down from an October projection of 1.1% growth this year, but broadly in line with forecasts from other economic bodies. The International Monetary Fund earlier this month cut its outlook and now sees 0.3% growth for the German economy this year, while the federal Bundesbank in December said it was anticipating the GDP to increase by 0.2% over the period.
In contrast, the association of German Industry on Tuesday forecast the country’s economy will contract by 0.1% in 2025, in what would be the third annual decline in a row.
Annual GDP figures released earlier this month showed that Germany’s economy contracted by 0.2% in 2024, after already shrinking 0.3% in the previous year. Quarterly GDP figures have also been sluggish, but so far a technical recession, which is characterized by two consecutive quarter of contraction, has been avoided.
Habeck said that several key reasons underpinned the downward revision of the GDP forecast. Among them is the fact that the current government’s growth initiative plans could not be implemented fully because of the premature end of the administration’s term, along with questions surrounding the outcome of the upcoming election. Habeck also cited geopolitical uncertainty, following the White House return of U.S. President Donald Trump and the possibility of tariffs against European countries.
Looking ahead, the domestic economy will likely initially only show weak development this year due to continuing geopolitical uncertainty and a lack of clarity about the economic and fiscal direction of the new government, the German ministry for the economy and climate said in a statement accompanying its 2025 economic report.
It envisaged that the economy will then pick up pace as inflation falls, real incomes rise and economic conditions become clearer.
Habeck noted that 1.1% GDP growth was now being forecast for 2026.
Germany is headed for a federal election on Feb. 23, which is taking place earlier than originally planned after the country’s ruling coalition broke apart in November.
Structural challenges
Echoing Finance Minister Jörg Kukies’ comments to CNBC last week, Habeck on Wednesday said that Germany suffers from structural problems, which he said were evidenced by the lack of upward development of the economy in recent years. In a statement on Wednesday he pointed to a shortage of laborers and skilled workers, exuberant bureaucracy and weak investment.
The finance minister added that Germany has been systematically underinvesting and that restrictive fiscal policies have been dampening growth.
A preliminary reading of Germany’s fourth quarter GDP is due out Thursday. The country’s statistics office earlier this month said that, based on the information available at the time, the economy pulled back by 0.1% in the three months to the end of December.
The Wednesday economic report also pegged inflation as set to average 2.2% this year. Germany’s consumer price index had fallen back below the European Central Bank’s 2% target in late summer, but has risen again since.