Germany’s economic recovery momentum from the first quarter of 2025 is unlikely to continue into the second quarter, according to the ifo Institute for Economic Research. The institute anticipates stagnation in Q2 2025, citing a noticeable decline in industrial production and exports in April due to pull-forward effects.
Despite this short-term slowdown, the overall economic outlook remains cautiously positive. The ifo Institute projects a 0.3% increase in price-adjusted GDP for 2025 and a more robust 1.5% growth in 2026. These revised forecasts represent an upward adjustment of 0.1 and 0.7 percentage points, respectively, compared to previous estimates. The improvements are primarily attributed to additional fiscal stimuli, including a €46 billion tax relief package and a €500 billion infrastructure investment plan, which are expected to boost real GDP by approximately €25 billion in 2026.
However, the ifo Institute also warns of structural challenges that could impede long-term growth. The country faces issues such as weak demand, political uncertainties, and potential trade tensions, particularly with the United States, which may affect exports. Additionally, the risk of “creeping deindustrialization” remains, as companies relocate production and investments abroad due to high costs and regulatory burdens. In summary, while Germany’s economy is expected to experience short-term stagnation in Q2 2025, the medium-term outlook is more optimistic, contingent on effective policy implementation and resolution of structural issues.
