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GERMANY: IFO Forecasts GDP Growth Between 0.4-1.1% In 2025

GERMANY
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The IFO institute forecasts German GDP growth of 0.4% in 2025 in its base case, but at least sees the possibility for an "alternative scenario" in which the economy grows 1.1%. That's on the back of uncertainty of Germany "overcom[ing] its structural challenges". Note that this compares to IFO's last projection of 0.9% 2025 growth published in September. The highlighting of an alternative scenario might be a nod to potential election outcomes.

  • "German goods exports have become increasingly decoupled from global economic development, and Germany has become noticeably less competitive, especially in industry and especially outside Europe"
  • "In the more pessimistic scenario, this weakness will lead to creeping deindustrialization. Industrial companies are relocating production and investments abroad. Due to the structural shift away from industry and toward more services, productivity growth remains weak, and a temporary rise in unemployment is to be expected. Slight growth impetus is coming from a slow recovery in private consumption and the construction industry."
  • "In the more optimistic scenario, a more reliable economic policy will help manufacturing companies expand their production capacities again and, through tax incentives, for example, invest more and cut fewer jobs. In this scenario, incentives to work would also improve, more people overall would work, and individual employees would extend their working hours. This would in turn boost private consumption and cause the savings rate to fall."
  • As for CPI inflation, they expect 2.3% in 2025 and 2.0% in 2026, revised up from 2.0% and 1.9% respectively in the September forecast. 
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The IFO institute forecasts German GDP growth of 0.4% in 2025 in its base case, but at least sees the possibility for an "alternative scenario" in which the economy grows 1.1%. That's on the back of uncertainty of Germany "overcom[ing] its structural challenges". Note that this compares to IFO's last projection of 0.9% 2025 growth published in September. The highlighting of an alternative scenario might be a nod to potential election outcomes.

  • "German goods exports have become increasingly decoupled from global economic development, and Germany has become noticeably less competitive, especially in industry and especially outside Europe"
  • "In the more pessimistic scenario, this weakness will lead to creeping deindustrialization. Industrial companies are relocating production and investments abroad. Due to the structural shift away from industry and toward more services, productivity growth remains weak, and a temporary rise in unemployment is to be expected. Slight growth impetus is coming from a slow recovery in private consumption and the construction industry."
  • "In the more optimistic scenario, a more reliable economic policy will help manufacturing companies expand their production capacities again and, through tax incentives, for example, invest more and cut fewer jobs. In this scenario, incentives to work would also improve, more people overall would work, and individual employees would extend their working hours. This would in turn boost private consumption and cause the savings rate to fall."
  • As for CPI inflation, they expect 2.3% in 2025 and 2.0% in 2026, revised up from 2.0% and 1.9% respectively in the September forecast.