German economic institutes pessimistic on growth in 2025

BERLIN — German economic institutes on Thursday issued pessimistic growth forecasts for 2025 as Europe's biggest economy faces political risks at home and abroad.

"We see a critical combination of an economic downturn and structural problems," said the DIW institute's Geraldine Dany-Knedlik.

The DIW said it expected output to fall by 0.2 per cent this year followed by a "gradual revival" of 0.2 per cent growth in the year ahead.

Concern centred on export-oriented manufacturing, the backbone of the German economy.

Higher energy and material costs, as well as stronger international competition, especially from China, were buffeting the key sector, said Dany-Knedlik, the head of forecasting.

She also pointed to "the threat of tariffs from US President-elect Donald Trump", who has vowed tariffs of at least 10 per cent on all imports, a major issue for German exporters.

Weaker export performance was "likely to dampen German economic growth" in the coming years, the DIW concluded.

The IfW Kiel came to a similar conclusion, revising down its 2025 growth forecast to zero from an increase of 0.5 per cent.

"The reasons for the downward revision are mainly the expected US tariffs and the worsening crisis in German industry," it said.

The Ifo institute in Munich meanwhile allowed more optimism in its predictions for the coming 12 months.

"If the right economic policy is put in place, growth of 1.1 per cent could be achieved in 2025," the Ifo said, cautioning that the way forward was "not yet clear".

Germany is headed for new elections in late February, with the formation of a new coalition government then likely to take weeks if not months.

Without policies to encourage investment, the German economy would eek out a more modest 0.4 per cent growth in 2025, the Ifo said.

"The decisive factor will be whether the export-oriented German economy can once again benefit from growth in other countries," Ifo expert Timo Wollmershaeuser said.