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 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.
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.
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.
Echoing Finance Minister Jörg Kukies’ comments to CNBC last week, Economy and Climate Minister Robert Habeck said in a statement that Germany suffers from structural problems. He pointed to a shortage of laborers and skilled workers, exuberant bureaucracy and weak investment.
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.
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